**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K**

 
| **ý** | ** ** | **ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                                                                                              |
|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** | **For the fiscal year ended               December 31, 2005**                                                                                                                                                                                                                                                                                                                                                                              |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **o**      | ** ** | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** | **For the  transition period from                                       to                                        ** |
|       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** ** | ** ** | **Commission file number               333-124924**                                                                                                                                                                                                                                                                                                                                                                                        |

 

**155 East Tropicana, LLC155 East Tropicana Finance Corp.**

(Exact name of registrant as specified in its charter)

 

| **Nevada**                                                      | ** ** | **20-1363044**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| **Nevada**                                                      | ** ** | **20-2546581**                       |
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification No.) |

 

**115 East Tropicana Avenue, Las Vegas, NV89109**

(Address and telephone number of principalexecutive offices) (Zip Code)

 

Registrant’stelephone number, including area code:            **(702) 597-6076**

** **

Securities registered pursuant to Section 12(b) of the Act:

 
| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|-------------------------|------------|-----------------------------------------------|
| None.                   |       |                                          |

 

Securities registered pursuant to Section 12(g) of theAct:

 

**None.**

(Title of each class)

 

(Title of each class)

 

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.
|   | Yes o  No ý |
|--------|------------------|

 

Indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or Section15(d) of the Act.
|   | Yes o  No ý |
|--------|------------------|

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.
|   | Yes ý  No o |
|--------|------------------|

 

Indicate by check mark if disclosure ordelinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of thischapter) is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K.
|   | Yes o  No ý |
|--------|------------------|

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, or a non-acceleratedfiler.  See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Checkone):
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-Accelerated  filer ý |
|----------------------------|--------|----------------------|--------|-------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).
|   | Yes o  No ý |
|--------|------------------|

 

State the aggregate market value of thevoting and non-voting common equity held by non-affiliates computed byreference to the price at which the common equity was last sold, or the averagebid and asked price of such common equity, as of the last business day of theregistrant’s most recently completed second fiscal quarter.
|   | Not Applicable. |
|--------|-----------------|

** **

**DOCUMENTS INCORPORATED BY REFERENCE**
|   | Not  applicable. |
|--------|------------------|

 

** **

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**TABLE OF CONTENTS**

 
| ** **    | ** **                                                                                                               | ** ** |
|---------------|--------------------------------------------------------------------------------------------------------------------------|------------|
| **PART I**    | ** **                                                                                                               | **2**      |
| Item 1.       | Business.                                                                                                                | 2          |
| Item 1A.      | Risk Factors.                                                                                                            | 14         |
| Item 1B.      | Unresolved  Staff Comments.                                                                                              | 28         |
| Item 2.       | Properties.                                                                                                              | 28         |
| Item 3.       | Legal Proceedings.                                                                                                       | 28         |
| Item 4.       | Submission  of Matters to a Vote of Security Holders.                                                                    | 28         |
| Item 5.       | Market for  Registrant’s Common Equity and Related Stockholder Matters and Issuer  Purchases of Equity Securities.  | 28         |
| Item 6.       | Selected  Financial Data.                                                                                                | 29         |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operation.                              | 31         |
| Item 7A.      | Quantitative  and Qualitative Disclosures About Market Risk.                                                             | 44         |
| Item 8.       | Financial  Statements and Supplementary Data.                                                                            | 45         |
| Item 9.       | Changes in  and Disagreements with Accountants on Accounting and Financial Disclosure.                                   | 83         |
| Item 9A.      | Controls and  Procedures.                                                                                                | 83         |
| Item 9B.      | Other Information.                                                                                                       | 84         |
| **PART II**   | ** **                                                                                                               | **85**     |
| Item 10.      | Directors  and Executive Officers of the Registrant.                                                                     | 85         |
| Item 11.      | Executive  Compensation.                                                                                                 | 87         |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management.                                                         | 88         |
| Item 13.      | Certain  Relationships and Related Transactions.                                                                         | 90         |
| Item 14.      | Principal  Accounting Fees and Services.                                                                                 | 92         |
| **PART III**  | ** **                                                                                                               | **94**     |
| Item 15.      | Exhibits and  Financial Statement Schedules.                                                                             | 94         |
| SIGNATURES    | 95                                                                                                                       |
| EXHIBIT INDEX | 99                                                                                                                       |
| Exhibit 31.1  | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                 |       |
| Exhibit 31.2  | Certification Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                 |       |
| Exhibit 32.1  | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |       |
| Exhibit 32.2  | Certification Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |       |

 

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# **PART I**

# ** **

## **ITEM 1.          BUSINESS.**

## ** **

**CorporateOrganization**

** **

We were formed in June of 2004 to acquire the Hôtel San Rémo Casino andResort, or the Hôtel San Rémo, a casino hotel located in Las Vegas, Nevada fromEastern & Western Hotel Corporation, or Eastern & Western.  The Hôtel San Rémo is now known as HootersCasino Hotel.  Our common membershipinterests are held two-thirds through Florida Hooters LLC and one-third throughEW Common LLC.

 

Florida Hooters LLC is a joint venture between Hooters Gaming LLC andLags Ventures, LLC.  Hooters Gaming LLCis owned by the holders of licenses to operate Hooters restaurants in the TampaBay, Chicago and Manhattan areas as well as for wholesale foods, calendars andNevada hotel/gaming, and includes most of the original founders of the Hootersbrand.  Lags Ventures, LLC is owned by aholder of the license rights to Hooters restaurants in south Florida and theState of Nevada.  Pursuant to theselicense rights, the owners of Florida Hooters LLC operate 39 Hootersrestaurants, publish Hooters calendars, and operate a Hooters food business.  The owner of Lags Ventures, LLC is also thefounder of the Dan Marino concept restaurants and owns and operates four DanMarino concept restaurants.

 

EW Common LLC was formed to hold Eastern & Western’s membershipinterest in us.  Eastern & Westernowns 90% of EW Common LLC while our chief operating officer, Michael Hessling,owns the balance.  Eastern & Westernis beneficially owned by Sukeaki and Toyoroku Izumi.  Eastern & Western and its affiliatesowned the Hôtel San Rémo from November 1988 until our acquisition of the hotelcasino in August of 2004.  Mr. Hesslingserved as Hôtel San Rémo’s executive vice president and chief operating officerfrom January 1989 until our acquisition, at which time he became our chiefoperating officer.

 

Our affiliates have granted us assignments of certain licensespertaining to the use of the Hooters brand as well as the Dan Marino, “13”Martini Bar and Pete & Shorty’s concept restaurants, solely for thepurposes of allowing us to operate a Hooters Casino Hotel located at ourproperty.  Pursuant to the Hooterslicense assignment, we are required to pay the owner of the Hooters trademark,HI Limited Partnership, a royalty fee. For more information, see “Item 1. Business—Intellectual Property” and “Item13.Certain Relationships and Related Transactions.”  Hooters of America, Inc. is the generalpartner of HI Limited Partnership and we refer to HI Limited Partnership andHooters of America, Inc. collectively as “Hooters of America.”  The original founders of the Hooters brandsold the trademark rights (excluding certain rights they retained forthemselves) to Hooters of America in 2001. As a result, Hooters of America is the trademark owner of the Hootersbrand and the operator and franchisor of 381 Hooters restaurants.  We are not affiliated with Hooters ofAmerica.

 

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Before we received our necessary gaming licenses and prior to November1, 2005, the Hôtel San Rémo was operated by Eastern & Western pursuant totwo separate leases with us.  Theseleases were terminated when we received our gaming license.  The following chart illustrates our corporatestructure:

 

 

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(1)          155 East Tropicana Finance Corp. was formed for the sole purpose offacilitating the issuance of the Notes (defined below).

 

**Company Debt**

 

On March 29, 2005 we issued $130,000,000 aggregate principal amount ofour 8 3⁄4 % Senior Secured Notes due 2012, or the old notes, to Jefferies &Company, Inc. and Wells Fargo Securities, LLC in a private placement.  The initial purchasers, Jefferies &Company, Inc. and Wells Fargo Securities, LLC, then sold the notes to qualifiedinstitutional buyers in reliance on Rule 144A and Regulation S under theSecurities Act of 1933, or the Securities Act. We subsequently filed a registration statement on Form S-4 with theSecurities and Exchange Commission, or the Commission, registering new notesfor an identical principal amount.  Oncethis registration became effective on June 24, 2005, we conducted an exchangeoffer of the old notes for the new notes, or the Notes.  The terms of each of the Notes are identicalto the old notes, except that the new notes were registered under theSecurities Act of 1933, or the Securities Act, are not entitled to certainregistration rights relating to the old notes and do not contain provisions forliquidated damages.  Each of the Notesrepresents the same debt as the applicable old notes and the Notes were issuedunder the same indenture as the applicable old notes.  All of the old notes were exchanged for Notesunder the exchange offering.

 

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We used the net proceeds from the sale of the old notes to (i)refinance existing indebtedness, (ii) pay related fees and expenses and, (iii)together with cash from operations and furniture, fixtures and equipmentfinancing, renovate the hotel casino, as well as provide additional workingcapital.

 

We make interest payments on the Notes semiannually, on each April 1and October 1, beginning as of October 1, 2005. The Notes and any guarantees thereof are secured by a (1) securityinterest in substantially all of our and any guarantors’ existing and futureassets (other than certain excluded assets), (2) our equity interest in theequity interest of any guarantors and (3) the renovation disbursement andinterest reserve accounts.  The indenturecovering the Notes allowed us to obtain an up to $15 million new secured creditfacility through Wells Fargo Foothill, Inc. contemporaneously with the closingof the old notes, on March 29, 2005.  Ourobligations under such senior secured credit facility are secured by a lien onthe collateral securing the Notes and any guarantees (other than the interestreserve account).  Pursuant to anintercreditor agreement, this lien is senior (except for the lien on therenovation disbursement account, which is subordinated) to the lien of thecollateral securing the Notes and any guarantees.  The collateral does not include gamingequipment purchased through furniture, fixture and equipment purchase moneyfinancing and certain other purchase money financings, and there are not anyrestrictions on the amount of gaming equipment financed in this manner.

 

**The Hôtel San Rémo**

** **

We own the Hooters Casino Hotel, formerly the Hôtel San Rémo in LasVegas, Nevada, which was recently renovated and re-branded.  The renovation commenced on March 29, 2005,and the Hooters Casino Hotel opened to the public on February 3, 2006.  We purchased the former Hôtel San Rémo inAugust of 2004.  Our property is locatedone-half block from the intersection of Tropicana Avenue and Las VegasBoulevard, a major intersection on the Las Vegas strip that is within walkingdistance to approximately 25,000 hotel rooms.

 

Prior to the renovation, Hôtel San Rémo featured 711 hotel rooms,including 17 suites, and an approximately 24,000 square-foot casino with532 slot and video poker machines, 16 table games, a sports book and keno. TheHôtel San Rémo remained open during our renovation, although only on a limitedbasis from late October 2005 until we opened the property as the Hooters CasinoHotel on February 3, 2006.

 

**Hooters **Casino** Hotel**

** **

The Hooters Casino Hotel features the famous Hooters décor, and theHooters brand is a prominent component of the facility. Our renovations haverefreshed and upgraded the property, and provide several new restaurantofferings.  The Hooters Casino Hotelfeatures:

 

•                  an approximately 29,000square foot “Hooters” themed casino floor with approximately 658state-of-the-art slot and video poker machines and 31 table games;

 

•                  696 newly renovated hotelrooms, including 17 suites;

 

•                  a tropical pool areafeaturing beach sand, palm trees, lagoon style waterfall, cabanas, and NippersPool Bar;

 

•                  distinctivedining and entertainment options, including:

 

-                    a world famous Hootersrestaurant;

 

-                    Dan Marino’s Fine Food andSpirits, a restaurant featuring American cuisine;

 

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-                    “13” Martini Bar, a retromartini lounge featuring live music and nightly entertainment;

 

-                    The Bait Shoppe, a gourmetfood café and sushi bar conveniently located at poolside;

 

-                    Porch Dogs, a Caribbeanthemed casual indoor-outdoor club offering music and cocktails;

 

-                    Pete & Shorty’sTavern, a casual and comfortable restaurant bar featuring a sports book and apoker room;

 

-                    The Dam Restaurant, a24-hour café offering both buffet style food and tableside food service; and

 

-                    The Lobby Bar, a 24-hour barlocated at the entrance to the casino, featuring service by the world famous Hootersgirls.

 

•                  Splurge, a retail storeselling Hooters branded merchandise.

 

•                  SASS, a day spa, salon andworkout facility.

 

**The Renovation**

** **

The renovation of the Hooters Casino Hotel commenced on March 29,2005.  We plan to spend a total ofapproximately $65.1 million for the renovation of the property, and as ofDecember 31, 2005 had spent approximately $28.1 million.  Our strategy is to build on Hooters’reputation as a casual, relaxed, fun, and welcoming environment. We believethat Hooters’ strong brand name recognition and our favorable location willgenerate significant visitor traffic. The key elements of our renovation of theproperty are:

 

*Redesign Main Entrance.*  We have renovated the main entrance to adoptthe Hooters décor of natural wood, tin, and orange. The Hooters brand is aprominent component of the main entrance and we have replaced the existingdoors with new 12-foot high clear glass doors to make the casino area clearlyvisible from the outside and the immediate entrance area. We also have madeimprovements to the traffic flow around the entrance areas that we expect willimprove pedestrian traffic into the casino. In addition, we have addedsignificant new signage to the property, including a large marquee in front ofthe property. We anticipate that these improvements will result in more walk-invisitors to the casino and our other attractions and amenities.

 

*Renovate and Expand Casino.*  We have expanded and renovated our casinofrom approximately 24,000 square feet to approximately 29,000 square feet andhave designed the casino to be more inviting and to better use the availablespace, allowing us to add new gaming equipment. We now feature 658state-of-the-art slot and video poker machines, 31 table games, sports book,keno and a poker room. To make the casino more inviting, we have raised the elevationof the ceiling in some areas for a more open feeling from approximately ninefeet to approximately 16 feet, updated the ceiling with décor of natural wood,tin, and orange, re-carpeted the gaming area with new Hooters-themedcarpet and installed wood floor in the surrounding area. In addition, adjacentto the entrance, we have added a Hooters bar, serving beer and cocktails tocasino guests, and a retail store, selling Hooters branded merchandise.

 

*New Dining and Entertainment Options.*  We offer distinctive dining and entertainmentoptions, including the 200-seat Hooters Restaurant, the 287-seat Dan Marino’sFine Food and Spirits, a 175 person occupancy “13” Martini Bar, the 75-seatPete & Shorty’s Tavern, the 175-seat the Dam Restaurant, the 43-seat TheBait Shoppe, the 185-seat Porch Dogs, and a 350 person occupancy Nippers PoolBar. To house our new Dan Marino’s restaurant, we built a new building adjacentto the main entrance. The

 

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restaurant is visible from both outside andinside the property. In addition, Dan Marino’s restaurant features a bar thatserves customers from both the casino floor and the restaurant.

 

*Hotel.*  We have significantlyremodeled our hotel rooms.  The newlyrenovated 696 rooms feature a Caribbean/Florida theme and new furniture,carpets, painted textured walls, lighting, art-work and bedspreads. We havealso renovated the bathrooms with new paint, fixtures, and upgraded amenities.The common hotel areas have been updated with new carpet, paint, doors andsignage.

 

*Renovate and Expand the Pool Area.*  We have expanded and upgraded the existingpool area to include tropical heated pools with beach sand, palm trees, threein-ground Jacuzzis, lagoon style waterfalls, 3 poolside cabanas, and NippersPool Bar, a swim up bar.

 

The total cost to renovate, equip, and re-open the property is expectedto be approximately $65.1 million. We have spent approximately $28.1 as ofDecember 31, 2005.  We expect to spendapproximately $47.7 million on renovations, which includes a$36.5 million guaranteed maximum price construction contract with ThePENTA Building Group, Inc. and approximately $11.2 million on designfees, permits, and non-gaming equipment. In addition, we expect to spend approximately $7.1 million onstate-of-the-art gaming equipment and approximately $10.3 million forworking capital and pre-opening expenses. We continued to keep the existing Hôtel San Rémo operations open duringthe renovation, although only on a limited basis from late October 2005 untilthe grand opening of the Hooters Casino Hotel on February 3, 2006.

 

**Competition**

** **

We face competition in the market in which we are located as well as inor near any geographic area from which we attract or expect to attract asignificant number of our customers. As a result, our casino property facesdirect competition from all other casinos and hotels in Las Vegas and to alesser extent, in the Mesquite, Laughlin, Reno and Lake Tahoe areas of Nevadaand in Atlantic City, New Jersey, and in the California gaming market, as wellas from other forms of gaming.

 

*Las Vegas, Nevada.*  The hotel casino industry in Las Vegas ishighly competitive. The Hooters Casino Hotel competes, on the basis of overallatmosphere, range of amenities, level of service, price, location,entertainment offered, theme and size. The Hooters Casino Hotel competes withnumerous resorts and hotel casinos on the Las Vegas strip and in downtown Las Vegas,as well as a large number of hotels and motels in and near Las Vegas. Manycompeting properties have themes and attractions which draw a significantnumber of visitors and compete with our property for hotel and gamingcustomers. Some of these facilities are operated by companies that have morethan one operating facility, and many have greater name recognition andfinancial and marketing resources than us and market to the same targetdemographic group as we do. Furthermore, additional major hotel casinos andsignificant expansion of existing properties, containing a significant numberof hotel rooms and attractions, are expected to open in Las Vegas within thecoming years. We seek to differentiate the Hooters Casino Hotel from othermajor Las Vegas hotel casino resorts by concentrating on the design,atmosphere, personal service and amenities that we provide and the added valueof the Hooters brand.

 

*California Gaming Market.*  Voters in California approved an amendment tothe California constitution in 2000 that gave Native American tribes inCalifornia the right to offer a limited number of slots machines and a range ofhouse-banked card games. A number of Native American tribes have alreadysigned, and others have begun signing, gaming compacts with the State ofCalifornia.  As of June 28, 2005, 61compacts have been approved by the federal government and casino-stylegaming is legal in California on those tribal lands. According to the NationalIndian Gaming Commission, as of March 23,

 

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2006, there are approximately 58 operatingtribal casinos in California. In addition, several Native American tribes inCalifornia have reached agreements with the State of California that allow foran increased number of gaming machines within the facilities operated by suchtribes in exchange for a revenue-based payment to the state. Thecompetitive impact on our gaming establishments from the continued growth ofgaming in California cannot be definitively determined but, depending on thenature, extent and location of the growth, the impact could be material.

 

*Other Forms of Gaming.*  We also compete, to some extent, with otherforms of gaming on both a local and national level, including state-sponsoredlotteries, Internet gaming, dockside casinos, riverboat casinos, on- andoff-track wagering and card parlors. The recent and continued expansion oflegalized casino gaming into new jurisdictions throughout the United States hasincreased competition faced by us and will continue to do so in the future.Additionally, if gaming were legalized or expanded in jurisdictions near anygeographic area from which we attract or expect to attract a significant numberof our customers, we could face additional competition which could have asignificant adverse impact on our business, financial condition and results ofoperations. There can be no assurance that we will be able to continue tocompete successfully in our existing markets or that we will be able to competesuccessfully against any such future competition.

 

**IntellectualProperty**

** **

We have entered into an assignment agreement with Florida Hooters, LLCwhich grants us the right to use certain intellectual property in connectionwith the operation of the Hooters Casino Hotel. The intellectual propertycovered by these agreements is described below. Additionally, we have beengranted a royalty-free license to the Pete & Shorty’s mark.  For more detailed information, see “Item 13.Certain Relationships and Related Transactions.”

 

*Hooters Trademark.*  The Hooters trademark and logo insignia arethe exclusive property of Hooters of America. We have an exclusive license touse the Hooters brand in connection with gaming, casino or combined hotel,gaming and casino operations solely at the Hooters Casino Hotel property.Florida Hooters, LLC originally obtained the license through an assignment fromHooters Gaming Corporation, an affiliated entity under common ownership withHooters Gaming LLC. The underlying license agreement was executed betweenHooters of America and Hooters Gaming Corporation, and granted to HootersGaming Corporation an exclusive license to use the licensed intellectualproperty in connection with gaming, casino or combined hotel, gaming and casinooperations within the State of Nevada. Hooters Gaming Corporation retained anyand all rights and obligations in the licensed intellectual property pursuantto the license agreement for all locations within Nevada other than the HootersCasino Hotel. Under an Affirmation and Acknowledgement agreement betweenHooters Gaming Corporation and 155 East Tropicana, LLC, Hooters GamingCorporation has agreed not to operate (or license or assign its rights tooperate) another Hooters Casino Hotel on the Las Vegas strip, until such timeas none of the Notes is outstanding. Additionally, under the agreement, HootersGaming Corporation agreed not to operate (or license or assign its rights tooperate) another Hooters Casino Hotel in Clark County, Nevada for a period offour years from the issuance of the Notes or such earlier time as none of theNotes is outstanding.

 

Combined hotel, gaming and casino operations contemplated under thelicense agreement include, but are not limited to, the right to provide thefollowing within the facility: (i) room service; (ii) restaurantoperations, subject to the consent of Las Vegas Wings, Inc., as the franchiseeof the rights to operate Hooters restaurants in Nevada (which consent has beenobtained); (iii) retail sales facilities in which third parties arepermitted to conduct retail sales of all kinds; and (iv) entertainmentfacilities, subject to certain quality standards. In connection with suchoperations, we have the right to (i) sell approved merchandise bearingsome or all of the licensed intellectual property, (ii) use the licensed

 

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intellectual property and Hooters Girls topromote, market and advertise such facilities worldwide, and (iii) includeHooters Girls as part of any facility staff.

 

We are required to pay Hooters of America an annual fee equal to$500.  In addition, we will pay toHooters of America a royalty in an amount equal to two percent (2%) of all netrevenues generated in connection with licensed activities (which includes netrevenues generated in connection with the Hooters restaurant operation) uponthe opening of the Hooters Casino Hotel in February 2006. We are also requiredby the license agreement to maintain certain quality standards for the use ofthe Hooters brand.

 

*Hooters Restaurant Concept.*  Pursuant to a consent from Las VegasWings, Inc., we have the right to use the Hooters restaurant concept atthe hotel casino.  The consent permitsworldwide promotion, marketing and advertising of the hotel casino and its services.In addition, under the consent, Las Vegas Wings, Inc. has agreed not to (andnot to grant a license to any other person to) open a Hooters restaurant on theLas Vegas strip (as defined in the agreement).

 

*Dan Marino Concept Restaurants.*  We have an exclusive license to use certainintellectual property to operate and promote restaurants, taverns, lounges andbars using the marks “Dan Marino’s Fine Food & Spirits” and “‘13’Martini Bar,” which is operated in conjunction with Dan Marino’s FineFood & Spirits, at the hotel casino. Florida Hooters, LLC was grantedthe license from Lags Ventures, Inc., an affiliated entity under commonownership with Lags Ventures, LLC. The initial term of the agreement is20 years but may be extended for an additional ten years. See “Item 13.Certain Relationships and Related Transactions.”

 

*Pete & Shorty’s.*  Pete & Shorty’s, Inc. hasgranted us a nonexclusive, royalty-free license to use the Pete &Shorty’s mark in connection with a restaurant, bar and lounge at the HootersCasino Hotel. Pursuant to the license agreement, we can also use the mark inconnection with affiliated merchandise, entertainment and casino services.However, Pete & Shorty’s, Inc. maintains the right to obtainfederal and/or state registrations for any and all additional services, otherthan restaurant, bar and cocktail lounge services, which we provide at theHooters Casino Hotel.

 

**Employees**

** **

We did not have any employees until November 1, 2005, when weterminated the hotel and casino leases with Eastern & Western.  Until that date, the hotel casino operationswere operated by Eastern & Western, who employed approximately 500full time and part time employees.  As ofDecember 31, 2005, we had 675 employees. As of March 23, 2006, we had approximately 1,350 employees.  None of the employees is covered by acollective bargaining agreement nor are any employees members of unions.  We cannot assure that one or more unions willnot attempt to organize our employees.

 

**Regulationand Licensing**

** **

The ownership and operation of casino gaming facilities in Nevada aresubject to the Nevada Gaming Control Act and the regulations promulgatedthereunder, or the Nevada Act, and various local regulations. In addition, ourgaming operations are subject to the licensing and regulatory control of the Nevada GamingCommission, or the Nevada Commission, the Nevada State Gaming Control Board, orthe Nevada Board, or the Clark County Liquor and Gaming Licensing Board, or theCCLGLB (together with the Nevada Commission and the Nevada Board, the NevadaGaming Authorities). We received our license from the Nevada GamingAuthorities as a limited liability company licensee in October 2005 and areregistered with the Nevada Commission as a publicly traded corporation,referred to as a Registered Corporation. In addition, Florida Hooters LLC andEW Common LLC are registered with the Nevada

 

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Gaming Authorities as intermediary companiesand licensed as the members of 155 East Tropicana, LLC. Hooters Gaming LLC,Lags Ventures, LLC, and Eastern & Western are registered with theNevada Gaming Authorities as holding companies and were found suitable asmembers of Florida Hooters LLC and EW Common LLC, respectively. Also, Messrs. Lageschulte,DiGiannantonio, Ranieri, Droste, Johnson, Blakely, S. Izumi, T. Izumi andHessling are individually licensed as our managers. Neil Kiefer and DeborahPierce also hold individual licenses as our officers. Finally,because we pay a percentage of our net profits directly earned from our gamingactivities to Hooters Gaming Corporation, it is licensed by the Nevada GamingAuthorities as well.

 

The laws, regulations and supervisory procedures of the Nevada GamingAuthorities are based upon declarations of public policy which are concernedwith, among other things:

 

•             the preventionof unsavory or unsuitable persons from having a direct or indirect involvementwith gaming at any time or in any capacity;

 

•             theestablishment and maintenance of responsible accounting practices andprocedures;

 

•             the maintenanceof effective controls over the financial practices of licensees, including theestablishment of minimum procedures for internal fiscal affairs and thesafeguarding of assets and revenues, providing reliable record keeping andrequiring the filing of periodic reports with the Nevada Gaming Authorities;

 

•             the preventionof cheating and fraudulent practices; and

 

•             providing asource of state and local revenues through taxation and licensing fees.

 

Changes in these laws, regulations and procedures could have an adverseeffect on our business, financial condition and results of operations.

 

Corporations and other entities that operate casinos in Nevada arerequired to be licensed by the Nevada Gaming Authorities. A gaming license forsuch activities requires the periodic payment of fees and taxes and is nottransferable. As a Registered Corporation, we are required periodically tosubmit detailed financial and operating reports to the Nevada Commission and tofurnish any other information that the Nevada Commission may require.

 

The Nevada Gaming Authorities may investigate any individual who has amaterial relationship to, or material involvement with us in order to determinewhether such individual is suitable or should be licensed as a businessassociate of a gaming licensee. Our owners, officers, managers and certain keyemployees are required to be licensed by the Nevada Gaming Authorities. TheNevada Gaming Authorities may deny an application for licensing for any causethat they deem reasonable. A finding of suitability is comparable to licensing,and both require submission of detailed personal and financial informationfollowed by a thorough investigation. Changes in licensed positions must bereported to the Nevada Gaming Authorities and, in addition to their authorityto deny an application for a finding of suitability or licensure, the NevadaGaming Authorities have jurisdiction to disapprove a change in a corporateposition.

 

If the Nevada Gaming Authorities were to find an owner, officer,manager or key employee unsuitable for licensing or unsuitable to continuehaving a relationship with us, we would have to sever all relationships withthat person. In addition, the Nevada Commission may require us to terminate theemployment of any person who refuses to file appropriate applications.Determinations of suitability or of questions pertaining to licensing are notsubject to judicial review in Nevada.

 

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As licensees, we are required to submit detailed financial andoperating reports to the Nevada Commission. Substantially all material loans,leases, sales of securities and similar financing transactions by us must bereported to the Nevada Commission.

 

If it were determined that we violated the Nevada gaming laws, ourgaming licenses and registrations with the Nevada Commission could be limited,conditioned, suspended or revoked, subject to compliance with certain statutoryand regulatory procedures. In addition, we and the persons involved could besubject to substantial fines for each separate violation of the Nevada laws atthe discretion of the Nevada Commission. Further, the Nevada Commission couldappoint a supervisor to operate our gaming properties and, under certaincircumstances, earnings generated during the supervisor’s appointment (exceptfor the reasonable rental value of our gaming properties) could be forfeited tothe State of Nevada. Limitation, conditioning or suspension of any gaminglicense or the appointment of a supervisor could (and revocation of any gaminglicense would) materially adversely affect our operations.

 

Since we do not intend to register or sell any of our equitysecurities, every holder of our equity securities is required to be licensed bythe Nevada Gaming Authorities. In addition, as 155 East Tropicana, LLC has beenlicensed by the Nevada Gaming Authorities and has become a RegisteredCorporation, none of its membership interests can be issued, sold, assigned,transferred, pledged, or otherwise disposed of without the prior approval ofthe Nevada Board and the Nevada Commission. In addition, the pledge of ourequity interests as security for the Notes was approved by the Nevada Board andthe Nevada Commission at the time 155 East Tropicana, LLC was licensed by andregistered with the Nevada Commission, which was necessary in order for suchpledge to remain effective.

 

If certain exemptions are granted under the Nevada Act to a RegisteredCorporation, then any person who acquires more than 5% of a RegisteredCorporation’s voting securities is required to report the acquisition to theNevada Commission. The Nevada Act requires that beneficial owners of more than10% of a registered corporation’s voting securities apply to the Nevada Commissionfor a finding of suitability within 30 days after the Chairman of theNevada Board mails the written notice requiring the filing for a finding ofsuitability. Under certain circumstances, an “institutional investor,” asdefined in the regulations of the Nevada Commission, which acquires more than10%, but not more than 15%, of our voting securities may apply to the NevadaCommission for a waiver of such finding of suitability if that institutionalinvestor holds the voting securities for investment purposes only. Aninstitutional investor will not be deemed to hold voting securities forinvestment purposes unless the voting securities were acquired and are held inthe ordinary course of business as an institutional investor and not for thepurpose of causing, directly or indirectly, the election of a majority of themembers of our board of managers, any change in our corporate charter, bylaws,management, policies or operations, or any of our gaming affiliates, or anyother action which the Nevada Commission finds to be inconsistent with holdingour voting securities for investment purposes only. Activities which are notdeemed to be inconsistent with holding voting securities for investmentpurposes only include:

 

•             voting on all matters voted on by stockholders;

 

•             making financial and other inquiries of managementof the type normally made by securities analysts for informational purposes andnot to cause a change in its management, policies or operations; and

 

•             otheractivities as the Nevada Commission may determine to be consistent with suchinvestment intent.

 

If the beneficial holder of voting securities who must be foundsuitable is a corporation, partnership or trust, it must submit detailedbusiness and financial information including a list of beneficial owners. Theapplicant is required to pay all costs of investigation.

 

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Under the Nevada Act, under certain circumstances, an institutionalinvestor as defined in the Nevada Act, which intends to acquire not more than15% of any class of securities of a privately-held corporation, limitedpartnership or limited liability company that is also a registered holder orintermediary company of the holder of a gaming license, may apply to the NevadaCommission for a waiver of the usual prior licensing or finding of suitabilityrequirements if such institutional investor holds such securities only forinvestment purposes. An institutional investor shall not be deemed to holdsecurities only for investment purposes unless the securities were acquired andare held in the ordinary course of business as an institutional investor, donot give the institutional investor management authority, and do not, directlyor indirectly, allow the institutional investor to vote for the election orappointment of members of the board of directors, a general partner or manager,cause any change in the articles of organization, operating agreement, otherorganic document, management, policies or operations, or cause any other actionthat the Nevada Commission finds to be inconsistent with holding securitiesonly for investment purposes. Activities that are not deemed to be inconsistentwith holding securities only for investment purposes include:

 

•             nominating anycandidate for election or appointment to the entity board of directors orequivalent in connection with a debt restructuring;

 

•             makingfinancial and other inquiries of management of the type normally made bysecurities analysts for informational purposes and not to cause a change in theentity management, policies or operations; and

 

•             such otheractivities as the Nevada Commission may determine to be consistent with suchinvestment intent.

 

Any person who fails or refuses to apply for a finding of suitabilityor a license within 30 days after being ordered to do so by the NevadaCommission or the Chairman of the Nevada Board, may be found unsuitable. Thesame restrictions apply to a record owner if the record owner, after request,fails to identify the beneficial owner. Any stockholder found unsuitable andwho holds, directly or indirectly, any beneficial ownership of the common stockof a registered corporation beyond the period of time as may be prescribed bythe Nevada Commission may be guilty of a criminal offense. We may becomesubject to disciplinary action if, after receipt of notice that a person isunsuitable to be a stockholder or to have any other relationship with us, we:

 

•             pay that personany dividend or interest upon voting securities;

 

•             allow that personto exercise, directly or indirectly, any voting right conferred throughsecurities held by that person;

 

•             payremuneration in any form to that person for services rendered or otherwise; or

 

•             fail to pursueall lawful efforts to require the unsuitable person to relinquish his votingsecurities for cash at fair market value.

 

Additionally, the CCLGLB has taken the position that it has theauthority to approve all persons owning or controlling the stock of anycorporation controlling a gaming license.

 

We may be required to disclose to the Nevada Board and the NevadaCommission the identities of all holders of the Notes. The Nevada Commissionmay, in its discretion, require the holder of any debt security of a RegisteredCorporation, including the Notes, to file applications, be investigated and befound suitable to own the debt security of a Registered Corporation. If theNevada Commission determines that a person is unsuitable to own a debtsecurity, then pursuant to the Nevada Act, the

 

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Registered Corporation can be sanctioned,including the loss of its approvals, if without the prior approval of theNevada Commission, it:

 

•             pays to theunsuitable person any dividend, interest, or any distribution whatsoever;

 

•             recognizes anyvoting right by the unsuitable person in connection with debt securities;

 

•             pays theunsuitable person remuneration in any form; or

 

•             makes anypayment to the unsuitable person by way of principal, redemption, conversion,exchange, liquidation or similar transaction.

 

We are required to maintain a current membership ledger in Nevada,which may be examined by the Nevada Gaming Authorities at any time. If anysecurities are held in trust by an agent or by a nominee, the record holder maybe required to disclose the identity of the beneficial holder to the NevadaGaming Authorities. A failure to make such disclosure may be grounds forfinding the record holder unsuitable. We are also required to render maximumassistance in determining the identity of the beneficial owner. The NevadaCommission has the power to require our securities to bear a legend indicatingthat the securities are subject to the Nevada Act. However, to date, the NevadaCommission has not imposed such a requirement on us.

 

We may not make a public offering of securities without the priorapproval of the Nevada Commission if the securities or proceeds from thesecurities are intended to be used to construct, acquire or finance gamingfacilities in Nevada, or to retire or extend obligations incurred for thepurposes of constructing, acquiring or financing gaming facilities.Furthermore, any approval, if granted, does not constitute a finding,recommendation or approval by the Nevada Commission or the Nevada Board as to theaccuracy or adequacy of the prospectus or the investment merits of thesecurities offered. Any representation to the contrary is unlawful. Pursuant tothe Nevada Act, any entity which is not an “affiliated company,” as such termis defined in the Nevada Act, or which is not otherwise subject to theprovisions of the Nevada Act, including us, which plans to make a publicoffering of securities intending to use such securities or the proceeds fromthe sale thereof for the construction or operation of gaming facilities inNevada, or to retire or extend obligations incurred for such purposes, mayapply to the Nevada Commission for prior approval of such public offering. TheNevada Commission may find an applicant unsuitable based solely on the factthat it did not submit such an application, unless upon a written request for aruling, the Chairman of the Nevada Board has ruled that it is not necessary tosubmit such an application. The exchange offer to exchange the old notes forthe Notes constituted a public offering requiring the approval of the NevadaCommission. Accordingly, we filed a written request with the Chairman of theNevada Board for a ruling that we did not need to submit the exchange offer forprior approval by the Nevada Commission, and such request was granted on June15, 2005.

 

Changes in control of a Registered Corporation through merger,consolidation, stock or asset acquisitions, management or consultingagreements, or any act or conduct by a person whereby that person obtainscontrol (including foreclosure on the pledged shares), may not occur withoutthe prior approval of the Nevada Commission. Entities seeking to acquirecontrol or ownership of a Registered Corporation must satisfy the Nevada Boardand Nevada Commission in a variety of stringent standards prior to assumingcontrol of such Registered Corporation. The Nevada Commission may also requirethe stockholders, officers, managers and other persons having a materialrelationship or involvement with the entity proposing to acquire control, to beinvestigated and licensed as part of the approval process relating to thetransaction.

 

The Nevada legislature has declared that some corporate acquisitionsopposed by management, repurchases of voting securities and corporate defensetactics affecting Nevada gaming licensees, and

 

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Registered Corporations that are affiliatedwith those operations, may be injurious to stable and productive corporategaming. The Nevada Commission has established a regulatory scheme to amelioratethe potentially adverse effects of these business practices upon Nevada’sgaming industry and to further Nevada’s policy to:

 

•             assure thefinancial stability of corporate gaming operators and their affiliates;

 

•             preserve thebeneficial aspects of conducting business in the corporate form; and

 

•             promote aneutral environment for the orderly governance of corporate affairs.

 

Approvals are, in certain circumstances, required from the NevadaCommission before we can make exceptional repurchases of voting securitiesabove the current market price thereof and before a corporate acquisitionopposed by management can be consummated.

 

The Nevada Act also requires prior approval of a plan ofrecapitalization proposed by the board of directors in response to a tenderoffer made directly to the Registered Corporation’s owners for the purposes ofacquiring control of the Registered Corporation.

 

License fees and taxes, computed in various ways depending on the typeof gaming or activity involved, are payable to the State of Nevada and to thecounties and cities in which the Nevada licensee’s respective operations areconducted. Depending upon the particular fee or tax involved, these fees andtaxes are payable either monthly, quarterly or annually and are based uponeither:

 

•             a percentage ofthe gross revenues received;

 

•             the number ofgaming devices operated; or

 

•             the number oftable games operated.

 

Any person who is licensed, required to be licensed, registered,required to be registered, or is under common control with such persons, or “Licensees,”and who is or who proposes to become involved in a gaming venture outside ofNevada, is required to deposit with the Nevada Board, and thereafter maintain,a revolving fund in the amount of $10,000 to pay the expenses of investigationby the Nevada Board of the Licensees’ participation in foreign gaming. Therevolving fund is subject to increase or decrease in the discretion of theNevada Commission. Thereafter, Licensees are also required to comply withcertain reporting requirements imposed by the Nevada Act. Licensees are alsosubject to disciplinary action by the Nevada Commission if they knowinglyviolate any laws of the foreign jurisdiction pertaining to a foreign gamingoperation, fail to conduct the foreign gaming operation in accordance with thestandards of honesty and integrity required of Nevada gaming operations, engagein activities or enter into associations that are harmful to the State ofNevada or its ability to collect gaming taxes and fees, or employ, contractwith or associate with a person in the foreign operation who has been denied alicense or a finding of suitability in Nevada on the ground of personalunsuitability.

 

**Potential Changesin Tax and Regulatory Requirements**

** **

In the past, federal and state legislators and officials have proposedchanges in tax law, or in the administration of the laws, affecting the gamingindustry. Regulatory commissions and state legislatures sometimes considerlimitations on the expansion of gaming in jurisdictions where we operate andother changes in gaming laws and regulations. Proposals at the national levelhave included a federal gaming tax and limitations on the federal income taxdeductibility of the cost of furnishing complimentary promotional items tocustomers, as well as various measures which would require withholding onamounts won by customers or on negotiated discounts provided to customers onamounts owed to gaming

 

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companies. It is not possible to determinewith certainty the likelihood of possible changes in tax or other laws or inthe administration of the laws. The changes, if adopted, could have a materialadverse effect on our financial results.

 

**Compliance with OtherLaws and Regulations**

** **

In addition to the regulations described above, our operations are alsosubject to extensive state and local laws, regulations and ordinances thatapply to non-gaming businesses generally, and, on a periodic basis, we mustobtain various other licenses and permits, including those required to sellalcoholic beverages. We have not incurred, and do not expect to incur, materialexpenditures with respect to these laws and regulations. There can be noassurances, however, that we will not incur material liability under these lawsand regulations in the future. See also “Item 1A. Risk Factors—Risks Related toOur Business—Governmental Regulations” and “—Factors Beyond Our Control.”

 

## **ITEM 1A.       RISK FACTORS.**

## ** **

The following risks, if any one or more occurs, could materially harmour business, financial condition or future results of operations.

 

**Risks Related to Our Business**

** **

**License Agreement—*We are required to paynumerous royalty and other fees to the licensors, some of whom are our affiliates,for the right to use certain intellectual property.***

** **

The Hooters trademark and logo insignia are the exclusive property ofHooters of America.  Pursuant to certainlicenses and an assignment of those license rights to us, we have a royalty-bearinglicense to use certain intellectual property related to the Hooters brandsolely for purposes of the operation of a Hooters Casino Hotel located at ourproperty. Our operation of the Hooters Casino Hotel is conditioned on paymentof certain royalty fees to Hooters of America and some of our affiliates basedon percentages of revenues and sales generated by our gaming and restaurantactivities, as described under “Item 1. Business—Intellectual Property” and “Item13. Certain Relationships and Related Transactions,” and satisfaction of otherconditions under the license. Failure to satisfy the conditions could result intermination of the license. Furthermore, in a bankruptcy of a licensor, thebankruptcy court could conclude that the trademark license agreements areexecutory contracts and, subject to certain legal requirements, may approverejection of the license agreements. Although we would take the position thatour license agreement with Hooters of America is perpetual and not an executorycontract, there can be no assurance that a bankruptcy court would so concludein a bankruptcy of Hooters of America. Rejection would give rise to a claim fordamages for breach of the license and might prevent us from continuing to usethe trademark or on the same terms. The loss of our license rights couldprevent us from operating as the Hooters Casino Hotel, which would have amaterial adverse effect on our business, financial condition and results ofoperations.

 

**Use of Hooters Brand—*Use of the Hooters brandby entities other than us, including in Las Vegas and other areas of Nevada,could adversely affect our business, financial condition and results ofoperations.***

** **

We will benefit from the name recognition and reputation generated bythe Hooters restaurants that are operated worldwide. We have the right to usethe Hooters brand and certain related intellectual property solely for purposesof the Hooters Casino Hotel. Hooters Gaming Corporation, an affiliate undercommon ownership with Hooters Gaming LLC, is the sole owner of the right to usethe Hooters brand in connection with the conduct of gaming and the operation ofhotels elsewhere in the state of Nevada.

 

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Hooters Gaming Corporation has agreed not tooperate (or license or assign its rights to operate) another Hooters CasinoHotel on the Las Vegas strip until the Notes are no longer outstanding.Additionally, Hooters Gaming Corporation has agreed not to operate (or licenseor assign its rights to operate) another Hooters Casino Hotel in Clark County,Nevada for a period of four years from the issuance of the Notes or suchearlier time as none of the Notes is outstanding. However, Hooters GamingCorporation or its assignee can exploit the Hooters brand and logo in connectionwith hotel casinos and casinos in other areas of Nevada and elsewhere,including marketing worldwide, and once the Notes are no longer outstanding, onthe Las Vegas strip. For example, other Hooters Casino Hotels could be openedin areas (other than the Las Vegas strip) in Las Vegas and Nevada andthroughout the world where gaming operations are permitted. In addition, LasVegas Wings, Inc., an affiliate under common ownership with Lags Ventures, LLC,owns the exclusive right to use the Hooters brand, marks and trade dress onrestaurant services elsewhere in Las Vegas (although it has agreed not to openor license another person to open a Hooters restaurant on the Las Vegas strip)and the remainder of the State of Nevada and currently owns two restaurants inNevada.  As a result, Las Vegas Wings,Inc. or its assignees can exploit the Hooters brand and logo in connection withadditional restaurants in Las Vegas or elsewhere in Nevada. See “Item 13.Certain Relationships and Related Transactions.” We cannot assure that thedevelopment of other hotel casinos, casinos or restaurants using the Hootersbrand in Nevada or elsewhere will not adversely affect our business, financialcondition and results of operations. Nor can we assure that our business, financialcondition and results of operations will not be adversely affected by themanagement of the Hooters brand or any negative public image or other adverseevent that becomes associated with the Hooters brand.

 

**Licensing—*We are required to maintain, gaming, liquorand other licenses to operate the Hooters Casino Hotel. The gaming industry ishighly regulated.***

** **

Our operation of the Hooters Casino Hotel is contingent upon themaintenance of various regulatory licenses, permits, approvals, registrations,findings of suitability, orders and authorizations. The laws, regulations, andordinances requiring these licenses, permits and other approvals generallyrelate to the responsibility, financial suitability and character of the ownersand managers of our gaming operations, as well as persons financiallyinterested or involved in our gaming operations, almost all of whom had neverbeen licensed previously. The scope of the approvals required to operate afacility were extensive. Failure to maintain the necessary approvals couldadversely affect our ability to operate the Hooters Casino Hotel. See “Item 1.Business—Regulation and Licensing.”

 

**DependenceUpon Cash Flow of Property—*Our cash flow to meet ourpayment obligations under the Notes and our other indebtedness and to fund ouroperations is dependent solely on the hotel casino.***

** **

We deposited a portion of the net proceeds from the offering of the oldnotes into an interest reserve account to fund, together with interest to beearned thereon, the first two payments of interest on the Notes. Once funds inthe interest reserve account have been depleted, we will rely exclusively oncash flow generated by the hotel casino as well as borrowings under our seniorsecured credit facility to meet our payment obligations under the Notes and ourother indebtedness and to fund our operations. If we have insufficient fundsavailable under our senior secured credit facility and the hotel casino is notgenerating sufficient cash flow to meet our payment obligations under the Notesby the date on which we are required to make the third interest payment on theNotes and our other indebtedness, we may be unable to make the requiredinterest payments to the Note holders, to meet our payment obligations underour other indebtedness and to fund our operations. See “Item 1A. RiskFactors—Risks Related to the Notes and Other Company Debt—Ability to ServiceDebt.”

 

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**Riskof a New Venture—*We do not have any prior operating historyor history of earnings as the Hooters Casino Hotel.***

** **

We were formed to acquire, operate, renovate and re-brand the Hôtel SanRémo. While the Hôtel San Rémo has a history of operations and a history ofearnings, we do not. Moreover, in the past, the Hooters brand has not beenassociated with hotels or casinos. Consequently, we cannot be certain that ourconstruction and renovation to the Hôtel San Rémo and transformation of theHôtel San Rémo into the Hooters Casino Hotel will attract the number and typeof hotel and casino customers and other visitors we desire to achieve ourobjective of improving the profitability of the hotel casino.

 

We are subject to significant business, economic, regulatory andcompetitive uncertainties frequently encountered by new businesses incompetitive environments, many of which are beyond our control. Because we haveno operating history, it may be more difficult for us to prepare for andrespond to these types of risks, and the other types of risks described herein,as compared with an established business. Our business prospects should beevaluated in light of the difficulties frequently encountered by companies inthe early stages of gaming projects and the risks inherent in the establishmentof a new business enterprise. There can be no assurance that we will be able tosuccessfully operate the hotel casino or manage these risks successfully, thatthe hotel casino will be profitable or that we will generate sufficient cashflow to meet our payment obligations under the Notes and our otherindebtedness, which would in turn negatively affect our business, financialcondition and results of operations.

 

**Competition—*We are subject to intense local competition as well as competition inthe gaming industry that could hinder our ability to operate profitably.***

** **

Competition in Las Vegas has increased over the last several years as aresult of significant increases in hotel rooms, casino sizes and convention,trade show and meeting facilities. Our success is dependent upon the success ofthe hotel casino and its continuing ability to attract visitors and operateprofitably. The hotel casino, located one-half block east of the Las Vegasstrip, competes with high-quality Las Vegas resorts and other Las Vegas hotelcasinos, including those located on the Las Vegas strip and in downtown LasVegas, on the basis of overall atmosphere, range of amenities, level ofservice, price, location, entertainment offered, theme and size. Currently,there are approximately 35 major gaming properties located on or near the LasVegas strip, 14 additional major gaming properties in the downtown area andadditional gaming properties located in other areas of Las Vegas. Some of thesefacilities are operated by companies that have more than one operatingfacility, and many have greater name recognition and financial and marketingresources than us and market to the same target demographic group as we do.Furthermore, additional major hotel casinos and significant expansion ofexisting properties, containing a significant number of hotel rooms andattractions, are expected to open in Las Vegas within the coming years. Therecan be no assurance that the Las Vegas market will continue to grow or thathotel casino resorts will continue to be popular. A decline or leveling off ofthe growth or popularity of such facilities would adversely affect ourbusiness, financial condition and results of operations. See “Item 1.Business—Competition.”

 

There also is substantial competition among gaming companies in thegaming industry generally, which includes land-based casinos, dockside casinos,riverboat casinos, casinos located on Native American land, including inCalifornia, and other forms of legalized gambling. If other casinos operatemore successfully, if existing properties are enhanced or expanded, or ifadditional hotels and casinos are established in and around the locations wherewe conduct business, we may lose market share. We also compete, to some extent,with other forms of gaming on both a local and national level, including state-sponsoredlotteries, Internet gaming, on- and off-track wagering and card parlors. Inparticular, the legalization of gaming or the expansion of legalized gaming inor near any geographic area from which

 

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we attract or expect to attract a significantnumber of our customers could have a significant adverse effect on ourbusiness, financial condition and results of operations.

 

Increased competition may also require us to make substantial capitalexpenditures to maintain and enhance the competitive position of our hotelcasino. Because we are highly leveraged, after satisfying our obligations underour outstanding indebtedness, there can be no assurance that we will havesufficient financing to make such expenditures. If we are unable to make suchexpenditures, our competitive position and our results of operations could bematerially adversely affected.

 

**GovernmentalRegulations—*We face extensive regulation from gaming and othergovernment authorities.***

** **

As owners and operators of gaming facilities, we are subject toextensive Nevada state and local regulation. Nevada state and local governmentauthorities require us and our subsidiaries to maintain gaming licenses andrequire our officers and key employees to demonstrate suitability to holdgaming licenses. The Nevada state and local government may limit, condition,suspend or revoke a license for any cause deemed reasonable by the respectivelicensing agency. They may also levy substantial fines against us or theindividuals involved in violating gaming laws or regulations. The occurrence ofany of these events could have a material adverse effect on our business,financial condition and results of operations.

 

No assurances can be given that any new licenses, registrations,findings of suitability, permits and approvals, including for any proposedexpansion of our hotel casino, will be renewed when they expire. Any failure torenew or maintain our licenses or receive new licenses when necessary wouldhave a material adverse effect on us.

 

We are subject to a variety of other rules and regulations, includingzoning, environmental, construction and land-use laws and regulations governingthe serving of alcoholic beverages. We also pay substantial taxes and fees inconnection with our operations as a gaming company, which taxes and fees aresubject to increase or other change at any time. Any changes to these lawscould have a material adverse affect on our business, financial condition andresults of operations.

 

The compliance costs associated with these laws, regulations andlicenses are significant. A change in the laws, regulations and licensesapplicable to our business or a violation of any current or future laws orregulations or our gaming licenses could require us to make materialexpenditures or could otherwise materially adversely effect our business,financial condition or results of operations. For more detailed information, see “Item 1. Business—Regulation andLicensing.”

 

**UnionEfforts to Organize Employees—*Our business, financialcondition, and results of operations may be harmed by union efforts to organizeour employees.***

** **

Our employees are not covered by collective bargaining agreements. Ifany union seeks to organize any of our employees, we could experiencedisruption in our business and incur significant costs, both of which couldhave a material adverse effect on our results of operation and financialcondition. If a union were successful in organizing any of our employees wecould experience significant increases in our labor costs which could also havea material adverse effect on our business, financial condition, and results ofoperations. We may face an increased risk of union activity now that theHooters Casino Hotel has opened due to a higher profile of the Hooters brand.

 

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**PossibleConflicts of Interest—*The relationship of ourchief executive officer to Hooters Inc. and related entities createspotential for conflicts of interest.***

** **

Neil Kiefer, our chief executive officer is the President, ChiefExecutive Officer and director of Hooters Inc. and related entities, whichare based in Florida, and some of which may have interests adverse to us. Dueto Mr. Kiefer’s responsibilities to serve both companies, there ispotential for conflicts of interest. At any particular time, the needs ofHooters Inc. could cause Mr. Kiefer to devote attention toHooters Inc. at the expense of devoting attention to us. In addition, mattersmay arise that place Mr. Kiefer in conflicting positions. No assurance canbe given that material conflicts will not arise which could be detrimental toour business, financial condition and results of operations.

 

**FactorsBeyond Our Control—*Our business, financial conditionand results of operations are dependent in part on a number of factors that arebeyond our control.***

** **

The economic health of our business is generally affected by a numberof factors that are beyond our control, including:

 

•             continuedincreases in healthcare costs;

 

•             generaleconomic conditions and economic conditions specific to our primary markets;

 

•             inaccessibilityto our property due to construction on adjoining or nearby properties, streetsor walkways;

 

•             levels ofdisposable income of casino customers;

 

•             increasedtransportation costs;

 

•             localconditions in key gaming markets, including seasonal and weather-relatedfactors;

 

•             increase ingaming taxes or fees;

 

•             decline intourism and travel due to occurrences or threats of terrorism or otherdestabilizing events;

 

•             substantialincrease in the cost of electricity, natural gas and other forms of energy;

 

•             competitiveconditions in the gaming industry, including the effect of such conditions onthe pricing of our games and products;

 

•             the relativepopularity of entertainment alternatives to casino gaming that compete for theleisure dollar;

 

•             the adoption ofanti-smoking regulations; and

 

•             an outbreak orsuspicion of an outbreak of an infectious communicable disease.

 

Any of these factors could negatively impact our property or geographiclocation in particular or the casino industry generally, and as a result, ourbusiness, financial condition and results of operations.

 

**EnvironmentalMatters—*We are subject to environmental laws and potentialexposure to environmental liabilities. This may cause us to incur costs oraffect our ability to develop, sell or rent our property or to borrow moneyusing such property as collateral.***

** **

We are subject to various federal, state and local environmental laws,ordinances and regulations, including those governing discharges to air andwater, the generation, handling, management and disposal of petroleum products,asbestos containing materials and other hazardous substances, and the healthand

 

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safety of our employees. Permits may berequired for our operations and these permits are subject to renewal,modification and, in certain cases, revocation. In addition, as a propertyowner and operator, we may be liable for the costs of investigating andremediating these substances products on, under or in our property, withoutregard to whether we knew of, or caused, the presence of the contaminants, andregardless of whether the practices that resulted in the contamination werelegal at the time they occurred. The presence of, or failure to remediateproperly, the substances may adversely affect our ability to sell or lease ourproperty or to borrow funds using it as collateral. Additionally, we may besubject to claims by third parties based on damages and costs resulting fromenvironmental contamination emanating from our property.

 

We have not identified any such issues associated with our propertythat could reasonably be expected to have an adverse effect on us or theresults of our operations. However, it is possible that historical orneighboring activities have affected our property and, as a result, there canbe no assurance that material obligations or liabilities under environmentallaws will not arise in the future which may have a material adverse effect onus. Moreover, it is also possible that future developments could lead tomaterial environmental compliance costs or other liabilities for us and thatthese costs could have a material adverse effect on our business and financialcondition.

 

**UninsuredLosses—*We may incur losses that are not adequately coveredby insurance which may harm our financial condition and results of operations.***

** **

Although we maintain insurance that we believe is customary andappropriate for our business, we cannot assure you that insurance will beavailable or adequate to cover all loss and damage to which our business andour assets might be subjected. In connection with insurance renewals subsequentto the terrorist events of September 11, 2001, the insurance coverage forcertain types of damages or occurrences has been diminished substantially andis unavailable at commercial rates. The lack of adequate insurance for certaintypes or levels of risk could expose us to significant losses in the event thata catastrophe or lawsuit occurred for which we are underinsured. Any losses weincur that are not adequately covered by insurance may decrease our futureoperating income, require us to find a replacement for or repair destroyedproperty and reduce the funds available for payment of our obligations on theNotes and our other indebtedness.

 

**Risks Related to the Notes and Other Company Debt**

** **

**SubstantialDebt—*Our substantial level of debt could adverselyaffect our financial condition and prevent us from fulfilling our obligationsunder the Notes and our other debt.***

** **

We have substantial debt. As of December 31, 2005, we have total debtof $130.0 million, and our earnings were insufficient to cover fixed charges by$14.0 million for the year ended December 31, 2005.  We have an interest reserve funded from theoffering of the old notes that funded the first interest payment on October 1,2005 and will fund the second interest payment on April 1, 2006.

 

In addition to the Notes, we and our subsidiary are permitted under theindenture governing the Notes to incur additional debt, including up to$15.0 million principal amount of debt under our senior secured creditfacility and debt used to purchase furniture, fixtures and equipment (includingunlimited gaming furniture, fixtures and equipment financing). Additionally, ifwe satisfy debt coverage tests in our debt agreements, we could incur furtherdebt. If new debt were to be incurred in the future, the related risks couldintensify.

 

Our substantial debt could have important consequences and significanteffects on our business. For example, it could:

 

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•             make it moredifficult for us to satisfy our obligations under the Notes and our other debt;

 

•             result in anevent of default if we fail to satisfy our obligations under the Notes or ourother debt or fail to comply with the financial and other restrictive covenantscontained in the indenture governing the Notes or our senior secured creditfacility, which event of default could result in all of our debt becomingimmediately due and payable and could permit our lenders to foreclose on ourassets securing such debt;

 

•             require us todedicate a substantial portion of our cash flow from our business operations topay our debt, thereby reducing the availability of cash flow to fund workingcapital, capital expenditures, development projects, general operationalrequirements and other purposes;

 

•             limit ourability to obtain additional financing for working capital, capitalexpenditures and other activities;

 

•             limit ourflexibility in planning for, or reacting to, changes in our business and theindustry in which we operate;

 

•             increase ourvulnerability to general adverse economic and industry conditions or a downturnin our business; and

 

•             place us at acompetitive disadvantage compared to competitors that are not as highlyleveraged.

 

Any of the above-listed factors could have a material adverseeffect on our business, financial condition and results of operations and ourability to meet our payment obligations under the Notes and our other debt.

 

**Abilityto Service Debt—*To service our debt, we will require asignificant amount of cash. If we fail to generate sufficient cash flow fromfuture operations, we may have to refinance all or a portion of our debt orseek to obtain additional financing.***

** **

We expect to obtain the funds to pay our expenses and to pay theamounts due under the Notes, our senior secured credit facility and our otherdebt primarily from our operations.  Ourability to meet our expenses and make these payments thus depends on our futureperformance, which will be affected by financial, business, economic and otherfactors, many of which we cannot control. Our business may not generatesufficient cash flow from operations in the future and our currentlyanticipated growth in revenue and cash flow may not be realized, either or bothof which could result in our being unable to pay amounts due under our debt,including the Notes, or to fund other liquidity needs, such as future capitalexpenditures. If we do not have sufficient cash flow from operations, we may berequired to refinance all or part of our then existing debt, sell assets,reduce or delay capital expenditures or borrow more money. We cannot assure youthat we will be able to accomplish any of these alternatives on termsacceptable to us, or at all. In addition, the terms of existing or future debtagreements, including our senior secured credit facility and the indenturegoverning the Notes, may restrict us from adopting any of these alternatives.The failure to generate sufficient cash flow or to achieve any of thesealternatives could materially adversely affect our ability to pay our debtobligations.

 

**Limitationson Collateral—*The collateral securing the Notes will notinclude any of our gaming assets or certain other excluded assets.***

** **

The Notes and any guarantees thereof are secured by a security interestin substantially all of our and any guarantors’ existing and future assets(other than certain excluded assets), a pledge of our equity interests and theequity interests in any guarantors, and the renovation disbursement andinterest reserve accounts, in each case, subject to some limitations. As ofDecember 31, 2005, there are no subsidiary

 

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guarantors. The collateral does not includegaming licenses or any gaming equipment or other assets securing furniture,fixtures and equipment financing, and there are no restrictions on the amountof gaming equipment financed in this manner. The collateral also does notinclude contracts, agreements, licenses (including gaming and liquor licenses)and other rights that by their express terms prohibit the assignment thereof orthe grant of a security interest therein. Some of these may be material to usand such exclusion could have a material adverse effect on the value of thecollateral.

 

**Valueof Collateral Securing the Notes—*The fair market value ofthe collateral securing the Notes may not be sufficient to pay the amounts owedunder the Notes.***

** **

The proceeds of any sale of collateral following an event of defaultwith respect to the Notes may not be sufficient to satisfy, and may besubstantially less than, amounts due on the Notes. No appraisal has been madeof the collateral. The total value of the collateral is likely less than theamount due on the Notes.

 

The value of the collateral in the event of liquidation will dependupon market and economic conditions, the availability of buyers and similarfactors. By its nature, some or all of the collateral may not have a readilyascertainable market value or may not be saleable or, if saleable, there may besubstantial delays in its liquidation. To the extent that liens, securityinterests and other rights granted to other parties (including the lendersunder our senior secured credit facility) encumber assets owned by us, thoseparties have or may exercise rights and remedies with respect to the propertysubject to their liens that could adversely affect the value of that collateraland the ability of the trustee under the indenture governing the Notes or theholders of the Notes to realize or foreclose on that collateral. Consequently,we cannot give assurance that liquidating the collateral securing the Noteswould produce proceeds in an amount sufficient to pay any amounts due under theNotes after also satisfying the obligations to pay any creditors with priorclaims on the collateral.

 

In addition, under the intercreditor agreement between the trusteeunder the indenture governing the Notes and the lenders under our seniorsecured credit facility, the right of the lenders to exercise remedies withrespect to the collateral could delay liquidation of the collateral. The gaminglicensing process, along with bankruptcy laws and other laws relating toforeclosure and sale, as discussed below, also could substantially delay orprevent the ability of the trustee or any holder of the Notes to obtain thebenefit of any collateral securing the Notes. Such delays could have a materialadverse effect on the value of the collateral.

 

The indenture governing the Notes also permits us to designate one ormore of our restricted subsidiaries as an unrestricted subsidiary. If wedesignate a restricted subsidiary as an unrestricted subsidiary, all of theliens on any collateral owned by the unrestricted subsidiary or any of itssubsidiaries and any guarantees of the Notes by the unrestricted subsidiary orany of its subsidiaries will be released under the indenture but notnecessarily under our senior secured credit facility. Designation of anunrestricted subsidiary will reduce the aggregate value of the collateralsecuring the Notes to the extent that liens on the assets of the unrestrictedsubsidiary and its subsidiaries are released. In addition, the creditors of theunrestricted subsidiary and its subsidiaries will have a prior claim (ahead ofthe Notes) on the assets of such unrestricted subsidiary and its subsidiaries.

 

If the proceeds of any sale of collateral are not sufficient to repayall amounts due on the Notes, the holders of the Notes (to the extent notrepaid from the proceeds of the sale of the collateral), would have only anunsecured claim against our remaining assets.

 

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**LienSubordination of Notes—*The lien on the collateral(other than the renovation disbursement and interest reserve accounts) securingthe Notes are contractually subordinated pursuant to the intercreditor agreementto the liens securing our senior secured credit facility.***

** **

The security interests securing the Notes and any guarantees of theNotes are contractually subordinated (other than the security interests in therenovation disbursement account, which is senior, and interest reserve account,which does not secure our senior secured credit facility) to up to$15.0 million principal amount of debt (plus related interest, fees,indemnities, costs and expenses) that may be incurred under our senior securedcredit facility, pursuant to an intercreditor agreement between the trusteeunder the indenture governing the Notes and the lenders under our seniorsecured credit facility. In addition, lenders of furniture, fixtures andequipment financing and other purchase money debt have a security interest inthe assets securing that debt, although those assets, so long as they secureonly such debt, will not secure the Notes. The indenture permits unlimitedgaming furniture, fixtures and equipment financing and up to $2.5 millionof other secured purchase money financing. As a result, upon any distributionto our creditors, whether or not in bankruptcy, liquidation, reorganization orsimilar proceedings, or following acceleration of our debt or an event ofdefault under such debt, the lenders under our senior secured credit facilityand the lenders of furniture, fixtures and equipment financing and otherpurchase money debt will be entitled to be repaid in full from the proceeds ofthe assets (other than the renovation disbursement account) securing such debtbefore any payment is made to holders of Notes from such proceeds. The holdersof the Notes will be entitled to be repaid from the amount in the renovationdisbursement account prior to lenders under our senior secured credit facilityreceiving any such amount. Only the Notes, and not our senior secured creditfacility, are secured by the interest reserve account.

 

Consequently, the liquidation of the collateral securing the Notes maynot produce proceeds in an amount sufficient to pay the amounts due on theNotes after also satisfying the obligations to pay our senior secured creditfacility lenders and purchase money lenders, even if the fair market value ofthe collateral securing the Notes would be sufficient, absent our seniorsecured credit facility and purchase money debt, to pay all amounts due on theNotes. If the proceeds of any sale of collateral are not sufficient to repayall amounts due on the Notes, the holders of the Notes (to the extent notrepaid from the proceeds of the sale of the collateral), would have only anunsecured claim against our remaining assets.

 

**Mechanics’Liens—*Parties who have provided services or supplies inconnection with the renovation of our hotel casino may have a lien on the project senior to the securityinterests securing the Notes and any guarantees.***

** **

Nevada law provides contractors, subcontractors and material supplierswith a lien on the property improved by their services or supplies in order tosecure their right to be paid. If these parties are not paid in full, they mayseek foreclosure on their liens. In Nevada, the priority of all mechanics’liens related to a particular construction project relate back to the date onwhich work first commenced by any contractor. Accordingly, contractors,subcontractors and suppliers providing goods and services in connection withthe renovation of the hotel casino who after recordation of the securityinterests securing the Notes otherwise comply with the applicable requirementsof Nevada law may have a lien on our hotel casino senior in priority to thesecurity interests, securing the Notes until they are paid in full.

 

The cash collateral and disbursement agreement requires compliance withprocedures intended to insure the proper payment to parties performing work.Additionally, as a condition to the disbursement of funds for the renovation ofthe hotel casino from the renovation disbursement account, lien releases arerequired to be obtained from all contractors, subcontractors and suppliers whohave provided work,

 

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materials and services. Nevertheless, in theevent of a liquidation, proceeds from the sale of collateral will be used topay the holders of any mechanics’ liens then in existence before holders of theNotes.

 

**LimitedAbility of Holders of the Notes to Exercise Remedies—*The rightsof the trustee and holders of Notes to exercise remedies under the indenturegoverning the Notes are limited by an intercreditor agreement between the trusteeand the lenders under our senior secured credit facility.***

** **

A number of the rights and remedies of the trustee and the holders ofthe Notes are significantly limited under the intercreditor agreement. Forinstance, if the Notes become due and payable prior to the stated maturity orare not paid in full at the stated maturity at a time during which we have debtoutstanding under our senior secured credit facility, the trustee will not havethe right to foreclose upon the collateral that also secures the obligationsunder our senior secured credit facility (other than the renovationdisbursement account) unless and until the lenders under our senior securedcredit facility fail to take steps to exercise remedies with respect to or inconnection with such collateral within 90 days following notice to such lendersof the occurrence of an event of default under the indenture governing theNotes. In addition, the intercreditor agreement prevents the trustee and theholders of the Notes from pursuing remedies with respect to certain of thecollateral in an insolvency proceeding.

 

The rights and remedies of the trustee also are subject to additionalpractical limitations with respect to certain collateral so long as suchcollateral also secures our senior secured credit facility. The trustee doesnot and will not have possession (if certificated) of our equity interests inany guarantors or the equity interests of 155 East Tropicana, LLC and 155 EastTropicana Finance Corp. (even though such equity interests will constitutecollateral), so long as such equity interests also secure our senior securedcredit facility. As a result, so long as such equity interests also secure oursenior secured credit facility, the trustee (although it will have a perfectedsecurity interest in such equity interests) will not be able to take possessionof such equity interests upon the occurrence of an event of default under theindenture governing the Notes. In addition, the trustee does not have aperfected security interest in certain other portions of thecollateral—including deposit accounts—that consist of assets that are notperfected by filing a Uniform Commercial Code financing statement, or thatrequire that the issuers or any guarantor, as applicable, to cause the trusteeto obtain “control” (as defined in the Uniform Commercial Code) or possessionof such assets (and, after commercially reasonable efforts, the issuers or anysuch guarantor, as applicable, are unable to cause the trustee to obtain suchcontrol or possession).

 

**LimitedAbility of Holders of Notes to Realize on Collateral—*Gaming laws,bankruptcy laws and other factors may delay or otherwise impede the trustee’sability to foreclose on the collateral securing the Notes.***

** **

In addition to our intercreditor arrangements with lenders under oursenior secured credit facility, the gaming laws of the State of Nevada and thelicensing processes, along with other laws relating to foreclosure and sale,could substantially delay or prevent the ability of the trustee or any holderof the Notes to obtain the benefit of any collateral securing the Notes. Forexample, if the trustee sought to operate, or retain an operator for, any ofour gaming properties, the trustee would be required to obtain Nevada gaminglicenses. Potential purchasers of our gaming properties or the gaming equipmentwould also be required to obtain a Nevada gaming license. This could limit thenumber of potential purchasers in a sale of our gaming properties or gamingequipment, which may delay the sale of and reduce the price paid for thecollateral.

 

In addition, the trustee’s ability to repossess and dispose ofcollateral is subject to the procedural and other restrictions of state realestate, commercial and gaming law, as well as the prior approval of the lendersunder our senior secured credit facility. Among other things, if the trusteedid conduct a foreclosure sale, and if the proceeds of the sale wereinsufficient, after expenses, to pay all amounts due

 

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on the Notes, the trustee might, undercertain circumstances, be permitted to assert a deficiency claim against us.There can be no assurance that the trustee would be able to obtain a judgmentfor the deficiency or that we would have sufficient other assets to pay adeficiency judgment.

 

Federal bankruptcy law also could impair the trustee’s ability toforeclose upon the collateral. If we or a guarantor become a debtor in a caseunder the United States Bankruptcy Code, as amended, or the Bankruptcy Code,the automatic stay, imposed by the Bankruptcy Code upon the commencement of acase, would prevent the trustee from foreclosing upon the collateral or (if thetrustee has already taken control of the collateral) from disposing of it,without prior bankruptcy court approval.

 

The bankruptcy court might permit us to continue to use the collateralwhile the bankruptcy case was pending, even if the Notes were then in default.Under the Bankruptcy Code, holders of Notes and the trustee would be entitledto “adequate protection” of the interest of holders of Notes in the collateral,if necessary to protect against any diminution in value during the case.Because the Bankruptcy Code does not define “adequate protection,” and becausethe bankruptcy court has broad discretion, however, there can be no assurancethat the court would require us to provide holders of Notes with any form of “adequateprotection,” or that any protection so ordered would, in fact, be adequate.

 

In a bankruptcy case, the court would allow a claim for all amounts dueunder the Notes, including all accrued and unpaid interest through the date ofbankruptcy. Under the Bankruptcy Code, interest stops accruing on the date ofbankruptcy except under certain specified circumstances, and there can be noassurance that the court would allow a claim for post-bankruptcy interest. Ifthe court held that the value of the collateral securing the Notes was lessthan the amount due, the trustee would be permitted to assert a secured claimin an amount equal to the collateral’s value and an unsecured claim for thedeficiency.

 

For these and other reasons,if we or our subsidiaries become debtors in cases under the Bankruptcy Code,there can be no assurance:

 

•             whether anypayments under the Notes would be made;

 

•             whether or whenthe trustee could foreclose upon or sell the collateral;

 

•             whether theterm or other conditions of the Notes or any rights of the holders could bealtered in a bankruptcy case without the trustee’s or the investors’ consent;

 

•             whether thetrustee or investors would be able to enforce the investors’ rights against theguarantors under their guarantees; or

 

•             whether or towhat extent holders of the Notes would be compensated for any delay in paymentor decline in the collateral’s value.

 

Finally, the trustee’s ability to foreclose on the collateral on behalfof the holders of Notes may be subject to the consent of third parties, priorliens (as discussed above) and practical problems associated with therealization of the trustee’s security interest in the collateral.

 

**RestrictiveCovenants—*The indenture governing the Notes and our seniorsecured credit facility contain covenants that significantly restrict ouroperations.***

** **

The indenture governing the Notes and the agreement governing oursenior secured credit facility contain, and any other future debt agreementsmay contain, numerous covenants imposing financial and operating restrictionson our business. These restrictions may affect our ability to operate ourbusiness, may limit our ability to take advantage of potential businessopportunities as they arise and may adversely

 

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affect the conduct of ourcurrent business. These covenants place restrictions on our ability and theability of our restricted subsidiaries to, among other things:

 

•    pay dividends, redeem stockor make other distributions or restricted payments;

 

•    incur debt or issuepreferred equity interests;

 

•    make certain investments;

 

•    create liens;

 

•    agree to paymentrestrictions affecting the guarantors;

 

•    consolidate or merge;

 

•    sell or otherwise transferor dispose of assets, including equity interests of our restrictedsubsidiaries;

 

•    enter into transactions withour affiliates;

 

•    designate our subsidiariesas unrestricted subsidiaries; and

 

•    use the proceeds ofpermitted sales of our assets.

 

Our senior secured creditfacility also requires us to meet a number of financial ratios and tests.Compliance with these financial ratios and tests may adversely affect ourability to adequately finance our operations or capital needs in the future orto pursue attractive business opportunities that may arise in the future. Ourability to meet these ratios and tests and to comply with other provisionsgoverning our debt may be adversely affected by our operations and by changesin economic or business conditions or other events beyond our control. Ourfailure to comply with our debt-related obligations could result in an event ofdefault under the Notes and our other debt.

 

**Abilityto Repurchase Notes-*Our ability to repurchasethe Notes upon a change of control or an asset sale may be limited.***

** **

Upon the occurrence ofspecific “change of control” events and “asset sale” events, in each case asdefined in the indenture governing the Notes, we will be required to offer torepurchase all outstanding Notes at 101% of the principal amount (in the caseof a change of control) and 100% of the principal amount (in the case of anasset sale), in each case, plus accrued and unpaid interest to the date ofrepurchase. The lenders under our senior secured credit facility will have asimilar right to be repaid upon a change of control. Any of our future debtagreements may contain similar provisions with respect to a change of controlor asset sale. However, we may not have sufficient funds at the time of thechange of control or asset sale to make the required repurchase of Notes orrepayment of our other debt. The terms of our senior secured credit facilityalso will limit our ability to purchase Notes until all debt under our seniorsecured credit facility is paid in full. Any of our future debt agreements maycontain similar restrictions. If we fail to repurchase any Notes submitted in achange of control or asset sale offer, it would constitute an event of defaultunder the indenture which would, in turn, constitute an event of default underour senior secured credit facility and could constitute an event of defaultunder our other debt, even if the change of control itself would not cause adefault.

 

Important corporate events,such as takeovers, recapitalizations or similar transactions, may notconstitute a change of control under the indenture governing the Notes and thusnot permit the holders of the Notes to require us to repurchase or redeem theNotes.

 

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**RequiredRegulatory Redemption-*Noteholders may berequired to be licensed by a gaming authority and, if not so licensed, theirNotes will be subject to redemption.***

** **

We are required to notifythe Nevada Board as to the identity of, and may be required to submitbackground information regarding, each record or beneficial owner of the Notes.For purposes of these rules, “beneficial interest” includes all direct andindirect forms of ownership or control, voting power or investment power heldthrough any contract, lien, lease, partnership, stockholding, syndication,joint venture, understanding, relation ship, present or reversionary right,title or interest, or otherwise. The Nevada Board may determine that holders ofthe Notes have a “beneficial interest” in the issuers.

 

If the Nevada GamingAuthorities require any person, including a record or beneficial owner of theNotes, to be licensed, qualified or found suitable, that person must apply fora license, qualification or finding of suitability within the time periodspecified by the gaming authority. The person would be required to pay allcosts of obtaining a license, qualification or finding of suitability. If aholder of the Notes unable or unwilling to obtain such license, qualificationor finding of suitability, such agencies and authorities may not grant us or,if already granted, may suspend or revoke our licenses unless we terminate ourrelationship with the holder. Under these circumstances, we would be requiredto repurchase such Notes. There can be no assurance that we will havesufficient funds or otherwise will be able to repurchase any or all of theNotes. See “Item 1. Business-Regulation and Licensing.”

 

**FraudulentTransfer-*Under certain circumstances, a court could cancelthe obligations under the Notes or any guarantees and the liens that secure theNotes and guarantees.***

** **

Unless designated as anunrestricted subsidiary, each and any domestic subsidiary we form or acquirewill be required to guarantee the Notes and grant a security interest incertain of its assets (junior to the security interest granted to the lendersunder our senior secured credit facility) to secure its guarantee. Underfederal bankruptcy law and comparable provisions of state and federalnonbankruptcy fraudulent transfer laws, under certain circumstances a courtcould avoid (i.e., cancel) a guarantee and the security interest in theguarantor’s assets, and order the return of any payments made thereunder to theguarantor or to a fund for the benefit of its other creditors.

 

A court might take theseactions if it found that when the guarantor entered into its guarantee (or, insome jurisdictions, when payments became due on its guarantee), (i) itreceived less than reasonably equivalent value or fair consideration for itsguarantee, and (ii) any of the following conditions was then satisfied:

 

•    the guarantor was insolventor rendered insolvent by reason of incurring its obligations under itsguarantee or granting a security interest in its assets;

 

•    the guarantor was engaged ina business or transaction for which its remaining assets constitutedunreasonably small capital; or

 

•    the guarantor intended toincur, or believed (or reasonably should have believed) that it would incur,debts beyond its ability to pay as those debts matured.

 

In applying these factors, acourt would likely find that a subsidiary guarantor did not receive fairconsideration or reasonably equivalent value for its guarantee, except to theextent that it benefited directly or indirectly from the Notes’ issuance. Thedetermination of whether a subsidiary was or was rendered “insolvent” wouldvary depending on the law of the jurisdiction being applied. Generally, anentity would be considered insolvent if the sum of its debts (includingcontingent or unliquidated debts) is greater than all of its property at a fairvaluation or if the present fair salable value of its assets is less than

 

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the amount that will berequired to pay its probable liability on its existing debts (includingcontingent or unliquidated debts) as they become absolute and matured.

 

A court might also avoid aguarantor’s guarantee and the security interest in its assets, if the courtconcluded that the guarantor entered into the guarantee with actual intent tohinder, delay, or defraud creditors. If a court avoided a guarantor’sguarantee, you would no longer have a claim against that subsidiary, and theclaims of creditors of the subsidiary generally would be entitled to payment infull before the subsidiary paid any dividends or made any distributions to usfor the purpose of our satisfying any claims under the Notes.

 

Similarly, under federalbankruptcy law and comparable provisions of state and federal nonbankruptcyfraudulent transfer laws, under certain circumstances a court could avoid(i.e., cancel) the Notes and the security interest in an issuer’s assets, andorder the return of any payments made thereunder to the issuer or to a fund forthe benefit of its other creditors.

 

A court might take theseactions if it found that when an issuer issued the Notes, (i) it receivedless than reasonably equivalent value or fair consideration, and (ii) anyof the following conditions was then satisfied:

 

•    the issuer was insolvent orrendered insolvent by reason of incurring obligations under the Notes orgranting a security interest in its assets;

 

•    the issuer was engaged in abusiness or transaction for which its remaining assets constituted unreasonablysmall capital; or

 

•    the issuer intended toincur, or believed (or reasonably should have believed) that it would incur,debts beyond its ability to pay as those debts matured.

 

We used a substantialportion of the proceeds from the Notes to repay amounts due under existingindebtedness. To the extent that we used the proceeds of that indebtedness tomake payments to Eastern & Western (the parent of one of our members), inconnection with our acquisition of our hotel casino, a court might find that wedid not receive reasonably equivalent value or fair consideration for incurringour new debt obligations, under the Notes, to repay our existing indebtedness.Alternatively, a court might find that repayment of the existing indebtedness,which is guaranteed by certain of our affiliates, was for the benefit of theseaffiliates.

 

Regardless of the factorsidentified above, a court might also avoid the obligations of the issuers underthe Notes and the security interest in their assets and order the return of anypayments made under the Notes either to the issuers or to a fund for thebenefit of the issuers’ other creditors if the court found that the issuersincurred the obligations under the Notes with actual intent to hinder, delay,or defraud creditors of the issuers.

 

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**Redemption**-***We may choose to redeem the Notes at anytime on orafter April 1, 2009.***

 

The Notes are redeemable atour option on or after April 1, 2009. This means that we have the right,without a holder’s consent, to redeem or “call” all or a portion of the Notesat any time or on or after April 1, 2009. This does not mean that holders havea similar right to require us to repay the Notes. We may choose to redeem theNotes, for example, when prevailing interest rates are lower than the rate thenborne by the Notes. In that case holders would not be able to reinvest theredemption proceeds in a comparable security at an effective interest rate ashigh as the interest rate on the Notes being redeemed.

 

Any such redemption rightalso may adversely impact a holder’s ability to sell the Notes, and/or theprice at which holders could sell the Notes, as the redemption date approaches.Holders are advised to consult with a competent professional on relatedconsequences of purchasing redeemable notes before purchasing them.

 

## **ITEM 1B.**       UNRESOLVED STAFFCOMMENTS.

## ** **

Not applicable.

 

## **ITEM 2.**          PROPERTIES.

## ** **

Our principal propertiescurrently consist of the following:

 

*Hooters Casino Hotel.*We own theapproximately seven-acre site on which the Hooters Casino Hotel is located inLas Vegas, Nevada. The Hooters Casino Hotel consists of an approximately 29,000square-foot casino with 696 guest rooms located in the hotel casino buildingand within two towers. In addition, a six-level, 556-space parking garage islocated adjacent to the hotel casino, and 202 additional surface spaces parkingspaces are located on the site.

 

*Executive Offices and ConferenceFacility.*We own an approximately two-acre site consisting ofa one-level, 17,472 square-foot executive office building and conferencefacility and a 183-space parking lot.

 

## **ITEM 3.**          LEGAL PROCEEDINGS.

## ** **

From time to time, we are aparty to various claims arising in the normal course of business. Managementbelieves, however, that there are no proceedings pending or threatened againstus which, if determined adversely, would have a material adverse effect on ourfinancial condition, results of operations or liquidity.

 

## **ITEM 4.**          SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS.

## ** **

Notapplicable.

 

## **ITEM 5.**         MARKET FOR REGISTRANT’SCOMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES.

## ** **

Not applicable.

 

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## **ITEM 6.**          SELECTED FINANCIALDATA.

## ** **

Thehistorical selected financial data of 155 East Tropicana, LLC and of the HôtelSan Rémo Casino and Resort set forth below should be read in conjunction with “Item7. Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and “Item 8. Financial Statements and Supplementary Data.”  The statement of operations data for theperiods ended December 31, 2005 and 2004, and the balance sheet data atDecember 31, 2005 and 2004 of 155 East Tropicana, LLC are derived from, and arequalified by reference to, the audited financial statements included in “Item8. Financial Statements and Supplementary Data.”

 

**155 EAST TROPICANA, LLC**

 

| ** **                     | ** ** | **As of or for the periods ended  December 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| ** **                     | ** ** | **2005 (1) (2)**                                 | ** ** | **2004 (3)** | ** ** |
| ** **                     | ** ** | **(dollars in thousands)**                       | ** ** |
| **Results of Operations:**     |       |                                             |       |   |   |
| Net revenues (4)               |       | $                                                | 8,001      |   | $ | 2,150 |   |
| Operating expenses (5)         |       | 4,315                                            |       | — |   |
| Depreciation                   |       | 1,956                                            |       | 777 |   |
| Pre-opening expense            |       | 4,824                                            |       | 103 |   |
| Total operating (loss) income  |       | (3,094                                           | )          | 1,270 |   |
| Interest expense, net (6)      |       | (8,526                                           | )          | (2,184 | ) |
| Loss on extinguishment of debt |       | (2,247                                           | )          | — |   |
| Net loss                       |       | $                                                | (13,867    | ) | $ | (914 | ) |
| **Balance Sheet:**             |       |                                             |       |   |   |
| Total assets                   |       | $                                                | 163,159    |   | $ | 75,580 |   |
| Total liabilities              |       | $                                                | 143,607    |   | $ | 50,260 |   |

 

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(1)   We obtained our gaming and liquor licenses,thereby completing the final stage of the acquisition of substantially all theassets and certain liabilities of the hotel casino, in October 2005. Theresults of operation reflect the casino and hotel operations from November 1,2005 through December 1, 2005.

 

(2)   We were considered a development stagecompany until November 1, 2005.

 

(3)   We were formed on June 17, 2004 for thepurpose of consummating the acquisition of substantially all the assets andcertain liabilities of the hotel casino.

 

(4)   Net revenues for 2005 include related partylease income of $5.4 million received from Eastern & Western for the leaseof the hotel casino from January 1, 2005 through October 31, 2005.

 

(5)   Excludes pre-opening and depreciationexpense.

 

(6)   Interest expense, net of interest income.

 

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Thefollowing historical information of the Hôtel San Rémo Casino and Resort isderived from its audited financial statements for 2001 through 2005. Hôtel SanRémo Casino and Resort’s audited financial statements and related notes theretoas of October 31, 2005 and for the ten months then ended, and as of December31, 2004 and for the year then ended, and for the year ended December 31, 2003appear elsewhere in this Annual Report on Form 10-K. 

 
| ** **                                | ** ** | **HOTEL SAN REMO CASINO AND RESORT** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|
| **Ten Months Ended  October 31,**         | ** ** | **Years Ended  December 31,**        | ** ** |
| **2005 (1)**                              | ** ** | **2004**                             | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
| ** **                                | ** ** | **(dollars in thousands)**           | ** ** |
| **Results  of Operations:**               |       |                                 |       |   |   |   |   |   |   |   |   |
| **Revenues:**                             |       |                                 |       |   |   |   |   |   |   |   |   |
| Casino                                    |       | $                                    | 9,409      |   | $ | 12,725 |   | $ | 11,691 |   | $ | 11,831 |   | $ | 12,308 |   |
| Food and beverage                         |       | 5,556                                |       | 7,969 |   | 7,782 |   | 7,187 |   | 7,626 |   |
| Hotel and other                           |       | 12,217                               |       | 14,826 |   | 12,531 |   | 11,567 |   | 12,973 |   |
| Gross  revenues                           |       | 27,182                               |       | 35,520 |   | 32,004 |   | 30,585 |   | 32,907 |   |
| Promotional allowances                    |       | (1,770                               | )          | (2,414 | ) | (2,179 | ) | (2,384 | ) | (2,430 | ) |
| Net revenues                              |       | $                                    | 25,412     |   | $ | 33,106 |   | $ | 29,825 |   | $ | 28,201 |   | $ | 30,477 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| **Operating  expenses:**                  |       |                                 |       |   |   |   |   |   |   |   |   |
| Casino                                    |       | $                                    | 5,736      |   | $ | 6,796 |   | $ | 6,828 |   | $ | 6,537 |   | $ | 7,076 |   |
| Food and beverage                         |       | 4,976                                |       | 6,360 |   | 6,099 |   | 5,612 |   | 6,218 |   |
| Hotel and other                           |       | 3,629                                |       | 4,377 |   | 4,293 |   | 4,081 |   | 4,402 |   |
| General and administrative                |       | 6,679                                |       | 7,860 |   | 6,604 |   | 6,350 |   | 7,175 |   |
| Depreciation                              |       | 335                                  |       | 1,419 |   | 2,134 |   | 2,257 |   | 2,365 |   |
| Related party lease expense (2)           |       | 5,439                                |       | 2,150 |   | — |   | — |   | — |   |
| Restructuring costs                       |       | —                               |       | 514 |   | — |   | — |   | — |   |
| Total  operating expense                  |       | 26,794                               |       | 29,476 |   | 25,958 |   | 24,837 |   | 27,236 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| Operating  (loss) income                  |       | $                                    | (1,382     | ) | $ | 3,630 |   | $ | 3,867 |   | $ | 3,364 |   | $ | 3,241 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| **Other  income (expenses):**             |       |                                 |       |   |   |   |   |   |   |   |   |
| Interest income from affiliate            |       | $                                    | 346        |   | $ | 444 |   | $ | 579 |   | $ | 317 |   | $ | 223 |   |
| Interest expense                          |       | (7                                   | )          | (1,944 | ) | (1,185 | ) | (1,308 | ) | (1,864 | ) |
| Loss on sale of assets                    |       | —                               |       | (2 | ) | — |   | — |   | — |   |
| Foreign currency translation              |       | —                               |       | 660 |   | (2,264 | ) | (2,074 | ) | 2,890 |   |
| Other                                     |       | —                               |       | — |   | — |   | (19 | ) | — |   |
| Total other  income (expenses)            |       | 339                                  |       | (842 | ) | (2,870 | ) | (3,084 | ) | 1,249 |   |
| (Loss)  income before income taxes        |       | (1,043                               | )          | 2,788 |   | 997 |   | 280 |   | 4,490 |   |
| Benefit  (provision) for income taxes (3) |       | 397                                  |       | (867 | ) | (303 | ) | (66 | ) | (1,540 | ) |
| Net (loss)  income (3)                    |       | $                                    | (646       | ) | $ | 1,921 |   | $ | 694 |   | $ | 214 |   | $ | 2,950 |   |
|                                      |       |                                 |       |   |   |   |   |   |   |   |   |
| **Balance  sheet**                        |       |                                 |       |   |   |   |   |   |   |   |   |
| Cash and  cash equivalents                |       | $                                    | 2,903      |   | $ | 4,471 |   | $ | 2,703 |   | $ | 3,516 |   | $ | 2,913 |   |
| Total assets                              |       | 8,215                                |       | 12,297 |   | 33,312 |   | 36,631 |   | 34,319 |   |
| Total debt                                |       | —                               |       | 236 |   | 45,226 |   | 43,422 |   | 41,289 |   |
| Total  liabilities (3)                    |       | 4,355                                |       | 4,824 |   | 49,103 |   | 48,545 |   | 44,024 |   |
| Division  equity (deficit) (3)            |       | 3,860                                |       | 7,473 |   | (15,791 | ) | (11,914 | ) | (9,705 | ) |

 

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(1)   The completion of the final stage of theacquisition of the Hôtel San Rémo Casino and Resort occurred in October 2005,upon receipt of our gaming and liquor licenses. The results of operationreflect the casino and hotel operations from January 1, 2005 through October31, 2005.

 

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(2)   In connection with the August 3, 2004contribution of the Hôtel San Rémo Casino and Resort real property andnon-gaming assets to us, Eastern & Western entered into lease arrangementsto lease back the hotel casino until we received all of the necessarygovernment and regulatory approvals to operate the hotel casino. In October2005, we received the necessary gaming and liquor licenses; therefore, thelease arrangements were terminated on October 31, 2005.

 

(3)   The provision for income taxes, net income,and related adjustments to total division equity (deficit) for 2001 areunaudited.

 

## **ITEM 7.**          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

## ** **

Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by, the financial statements and related notes thereto and otherfinancial information included in “Item 8. Financial Statements andSupplementary Data.”  Certain statementsin this Management’s Discussion and Analysis of Financial Condition and Resultsof Operations are forward-looking.

 

***Overview for 155 East Tropicana, LLC***

 

Wewere formed on June 17, 2004 to acquire the Hôtel San Rémo Casino and Resort fromEastern & Western. Our common membership interests are held two-thirdsthrough Florida Hooters LLC and one-third through EW Common LLC.

 

FloridaHooters LLC is a joint venture between Hooters Gaming LLC and Lags Ventures,LLC. Hooters Gaming LLC is owned by the holders of licenses to operate Hootersrestaurants in the Tampa Bay, Chicago and Manhattan areas as well as forwholesale foods, calendars and Nevada hotel/gaming, and includes most of theoriginal founders of the Hooters brand. Lags Ventures, LLC is owned by a holderof the license rights to Hooters restaurants in South Florida and the State ofNevada. Pursuant to these license rights, the owners of Florida Hooters LLCoperate 39 Hooters restaurants, publish Hooters calendars, and operate aHooters foods business. The owner of Lags Ventures, LLC is also the founder ofthe Dan Marino concept restaurants and owns and operates four Dan Marinoconcept restaurants.

 

Eastern& Western owns 90% of EW Common LLC while our chief operating officer,Michael Hessling, owns the balance. Eastern & Western is beneficially ownedby Sukeaki and Toyoroku Izumi. Eastern & Western owned the Hôtel San RémoCasino and Resort from November 1988 until our acquisition of the Hôtel SanRémo in 2004. Mr. Hessling served as the Hôtel San Rémo Casino and Resort’sexecutive vice president and chief operating officer from January 1989 untilthe acquisition, at which time he became our chief operating officer.

 

Ouraffiliates have granted us assignments of certain license agreements pertainingto the use of the Hooters brand as well as the Dan Marino, “13” Martini Bar andPete & Shorty’s concept restaurants, which will allow us to operate theHooters Casino Hotel. Pursuant to the Hooters license assignment, we arerequired to pay the owner of the Hooters trademark, Hooters of America, aroyalty fee. The original founders of the Hooters brand sold the trademarkrights (excluding certain rights they retained for themselves) to Hooters ofAmerica in 2001.

 

Asa result, Hooters of America is the trademark owner of the Hooters brand andthe operator and franchisor of 381 Hooters restaurants. Aside from the abovementioned royalty fee, we are not otherwise affiliated with Hooters of America.

 

InAugust 2004, we agreed to the acquisition of the real property and other assetsof the Hôtel San Rémo Casino and Resort for approximately $74.6 millionincluding transaction costs and expenses, and

 

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asadjusted for final purchase price adjustments. Initially, we acquired $67.5million of the real property and non-gaming assets and agreed that additionalcash payments associated with the transfer of working capital and the remaining$5.0 million in gaming assets would be transferred to us upon obtaining thegaming and liquor licenses necessary to take over operations of the hotelcasino. In connection with the acquisition, we refinanced $43.7 million ofEastern & Western’s existing indebtedness, incurred additional expenses andobligations of $5.9 million, and issued to Eastern & Western $25.0 millionof preferred membership interest representing one-third of our commonmembership interests. EW Common LLC was formed to hold Eastern & Western’smembership interests in us. Concurrently, we issued to Florida Hooters LLC two-thirdsof our common membership interests in exchange for $5.1 million cash and theassignment of certain rights with respect to trademarks and licenses valued at$4.2 million, based on an appraisal from a third-party appraiser.

 

OnMarch 29, 2005, we issued $130.0 million aggregate principal amount of 83⁄4%Senior Secured Notes due 2012, or the old notes, in a private placement. Theold notes were subsequently exchanged with the notes registered with theCommission, or the Notes. Interest payments on the Notes are due semi-annually,on each April 1 and October 1. We used the proceeds from the old notes offeringto refinance existing indebtedness and is using the remaining proceeds(together with cash from operations and proceeds from equipment financing), torenovate the hotel casino and to provide working capital. The indenturegoverning the Notes required us to establish a renovation disbursement accountin the amount of $50.8 million and interest reserve account in the amount of$11.2 million. These accounts are presented on our consolidated balance sheetas restricted cash, and totaled approximately $29.3 million at December 31,2005. On October 1, 2005, the first semi-annual interest payment was made usingfunds from the interest reserve account.

 

Inconnection with the offering of the old notes, we formed a wholly ownedsubsidiary, 155 East Tropicana Finance Corp., solely for the purpose offacilitating the old notes offering as a co-issuer of the old notes.

 

Wealso entered into a $15.0 million senior secured credit facilityconcurrently with the offering of the old notes. We did not draw on this lineof credit during 2005.

 

Priorto November 1, 2005, we conducted no business or operations other than inconnection with the acquisition and subsequent leasing of the Hôtel San RémoCasino and Resort. Through October 31, 2005, Eastern & Western held thegaming license in Nevada and owned all gaming assets used by the Hôtel San RémoCasino and Resort. Under a casino lease and hotel lease, Eastern & Westernoperated the Hôtel San Rémo Casino and Resort. After obtaining the necessarygaming and liquor licenses to operate the hotel casino in October 2005, weassumed operations of the hotel casino on November 1, 2005 and the leases withEastern & Western were terminated.

 

InAugust 2004, we acquired the real property and other assets of the Hôtel SanRémo Casino and Resort. Since November 1, 2005, we have also operated the hotelcasino, and accordingly, have a limited operating history. Therefore, thediscussion of operations herein focuses on the revenues and expenses for theyears ended December 31, 2005 and 2004 as if there was no change in ownershipor operation of the hotel casino. The discussion of the combined operations for2004 to the historical operations for 2003 covers the periods when the hotelcasino was operated by Eastern & Western.

 

Casinorevenue is derived primarily from patrons wagering on slot machines, tablegames and other gaming activities. Table games include blackjack, craps,roulette, and specialty games. Casino revenue is defined as the win from gamingactivities, computed as the difference between gaming wins and losses, not thetotal amount wagered. “Table game drop” and “slot handle” are casino industryspecific terms used to identify the amount wagered by patrons for a casinotable game or slot machine,

 

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respectively.“Table game hold” and “slot hold” represent the percentage of the total amountwagered by the patron that the casino has won. Hold is derived by dividing theamount won by the casino (“table game win” and “slot win”) by the amountwagered by the patron. Casino revenue is recognized at the end of each gamingday.

 

Roomrevenue is derived from rooms and suites rented to guests. “Average daily rate”is an industry specific term used to define the average amount of revenue perrented room per day. “Occupancy percentage” defines the total percentage ofrooms occupied, and is computed by dividing the number of rooms occupied by thetotal number of rooms available. Room revenue is recognized at the time theroom is provided to the guest.

 

Foodand beverage revenues are derived from food and beverage sales in the foodoutlets of the hotel casino, including restaurants, room service and banquets. Foodand beverage revenue is recognized at the time food and/or beverage is providedto the guest. “Covers” are the number of patrons served in a food outlet. “Averagecheck” is the average amount of food and beverage revenue charged to patrons ontheir restaurant checks.

 

Casinorevenues vary from time to time due to general economic conditions, table gamehold, slot hold, and occupancy percentages at the Hôtel San Rémo Casino andResort and other hotels in Las Vegas. Casino revenues also vary depending uponthe amount of gaming activity as well as variations in the odds for differentgames of chance. Casino revenues, room revenues, food and beverage revenues,and other revenues vary due to general economic conditions and competition. During2005, Las Vegas has continued to experience an upward trend in totalvisitation, as well as gaming win, hotel occupancy and hotel daily average roomrates.

 

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Thefollowing table summarizes the combined results of operations of 155 EastTropicana, LLC and the results of operations of the Hôtel San Rémo Casino andResort as if there had been no change in ownership (in thousands):

 
| ** **                                                                | ** ** | **COMBINED**                         | ** ** | ** **                 | ** ** | **HÔTEL SAN RÉMO**         | ** ** | ** **                 | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------------------|------------|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|
| **Year Ended   December 31,   2005**                                      | ** ** | **Year Ended   December 31,   2004** | ** ** | **%  Change  2005 - 2004** | ** ** | **Year Ended   December 31,   2003** | ** ** | **%  Change  2004 - 2003** | ** ** |
| ** **                                                                | ** ** | **(dollars in thousands)**           | ** ** |
| Casino revenues                                                           |       | $                                    | 10,436     |                       | $          | 12,725                               |       | -18.0                      | %          | $ | 11,691 |   | 8.8 | % |
| Casino expenses                                                           |       | 6,824                                |       | 6,796                      |       | 0.4                                  | %          | 6,828                      |       | -0.5 | % |
| Profit margin                                                             |       | 34.6                                 | %          | 46.6                       | %          |                                 |       | 41.6                       | %          |   |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Food and beverage revenues                                                |       | $                                    | 6,218      |                       | $          | 7,969                                |       | -22.0                      | %          | $ | 7,782 |   | 2.4 | % |
| Food and beverage expenses                                                |       | 6,118                                |       | 6,360                      |       | -3.8                                 | %          | 6,099                      |       | 4.3 | % |
| Profit margin                                                             |       | 1.6                                  | %          | 20.2                       | %          |                                 |       | 21.6                       | %          |   |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Hotel and other revenues                                                  |       | $                                    | 13,392     |                       | $          | 14,826                               |       | -9.7                       | %          | $ | 12,531 |   | 18.3 | % |
| Hotel and other expenses                                                  |       | 4,270                                |       | 4,377                      |       | -2.4                                 | %          | 4,293                      |       | 2.0 | % |
| Profit margin                                                             |       | 68.1                                 | %          | 70.5                       | %          |                                 |       | 65.7                       | %          |   |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Promotional allowances                                                    |       | $                                    | 2,072      |                       | $          | 2,414                                |       | -14.2                      | %          | $ | 2,179 |   | 10.8 | % |
| Percent of gross revenues                                                 |       | 6.9                                  | %          | 6.8                        | %          |                                 |       | 6.8                        | %          |   |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| General and administrative expenses                                       |       | $                                    | 8,123      |                       | $          | 7,859                                |       | 3.4                        | %          | $ | 6,604 |   | 19.0 | % |
| Percent of net revenues                                                   |       | 29.0                                 | %          | 23.7                       | %          |                                 |       | 22.1                       | %          |   |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Depreciation expense                                                      |       | $                                    | 2,291      |                       | $          | 2,196                                |       | 4.3                        | %          | $ | 2,134 |   | 2.9 | % |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Restructuring costs                                                       |       | $                                    | —     |                       | $          | 514                                  |       | -100.0                     | %          | $ | — |   | — |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Pre-opening expenses                                                      |       | $                                    | 4,824      |                       | $          | 103                                  |       | 4,565.5                    | %          | $ | — |   | — |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Interest income                                                           |       | $                                    | 1,976      |                       | $          | 444                                  |       | 345.3                      | %          | $ | 579 |   | -23.3 | % |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Interest expense                                                          |       | $                                    | 10,163     |                       | $          | 4,128                                |       | 146.2                      | %          | $ | 1,185 |   | 248.4 | % |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Foreign currency translation gain (loss)                                  |       | $                                    | —     |                       | $          | 660                                  |       | -100.0                     | %          | $ | (2,264 | )  | -129.2 | % |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Loss on extinguishment of debt                                            |       | $                                    | 2,247      |                       | $          | —                               |       | 100.0                      | %          | $ | — |   | — |   |
|                                                                      |       |                                 |       |                       |       |                                 |       |                       |       |   |   |
| Related party lease income (155 East  Tropicana, LLC)                     |       | $                                    | 5,439      |                       | $          | 2,150                                |       | 152.9                      | %          | $ | — |   | — |   |
| Related party lease expense (Hôtel San Rémo  Casino and Resort) |       | $                                    | 5,439      |                       | $          | 2,150                                |       |                       | 152.9      | % | $ | — |   | — |   |
| Profit margin (combined)                                                  |       | 0.0                                  | %          | 0.0                        | %          | —                               |       |                       |       |   |   |
|                                                                           |            |                                      |            |                            |            |                                      |            |                            |            |  |  |  |  |  |  |

 

***Comparison of Year Ended December 31, 2005 (Combined) with the YearEnded December 31, 2004 (Combined)***

 

Thedecline in revenues was the result of a general decline in business due toconstruction disruption. During the year ended December 31, 2005, substantialblocks of rooms were periodically out of service for remodeling; the Paparazzirestaurant was closed in June 2005; the Luigi’s and Saizen restaurants werepermanently closed in September 2005; the coffee shop was closed from Septemberto the end of November; and from 230 to 330 slot machines on the casino floorwere deactivated during the months from June through December 2005. The mainentrance to the casino was obstructed from early November through the end ofDecember which interfered with traffic flow.

 

*Casino.*Casinorevenues decreased by $2.3 million to $10.4 million for the year ended December31, 2005, compared to $12.7 million for the year ended December 31, 2004,primarily attributable to construction disruption as discussed above. Tablegames revenue was $3.2 million in 2005, a decrease of $0.4 million, or 11.3%,from the prior year’s table games win of $3.6 million. The decrease in tablegame

 

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dropwas $2.8 million, or 14.0%, for the year ended December 31, 2005 compared tothe year ended December 31, 2004, and was partially offset by an increase inthe table game hold percentage from 18.5% in 2004 to 19.1% in 2005. Slotrevenue of $7.1 million for the year ended December 31, 2005 was a decrease of20.7% compared to $9.0 million in 2004. During the third and fourth quarters of2005, approximately one-half of the casino slot floor was closed because of theremodeling.

 

Casinoexpenses in 2005 remained comparable to 2004, with a slight increase dueprimarily to payroll expenses. Casino profit margin decreased given thedecrease in revenues and increase in expenses.

 

*Food and beverage.*Food and beverage revenue was $6.2 million for the year ended December31, 2005 as compared to $8.0 million for 2004, a decrease of 22.0%. The declinewas a result of a food revenue decline of $1.8 million. Covers in allrestaurants declined by 201,800, or 34.4%. Covers for the Coffee Shop declinedby 181,000, or 35.5%, during the year ended December 31, 2005 largely as aresult of the closure of the restaurant for two months. The decrease in foodrevenue is also attributable to the permanent closings of the Paparazzi, Luigi’s,and Saizen restaurants during the year ended December 31, 2005. Beveragerevenue (which includes complimentary beverages) increased slightly by $30,000,or 1.4%, largely due to the number of complimentary beverages served on thecasino floor.

 

Foodand beverage expenses decreased by 3.8% due to a decrease in cost of sales as aresult of the multiple restaurant closures. Food and beverage profit margindecreased significantly from 20.2% in 2004 to 1.6% in 2005 due to a significantdecrease in food and beverage revenues in 2005 while the expenses remainedcomparable from 2004 to 2005.

 

*Hotel and other.*Hotel and other revenue decreased by $1.4 million, or 9.7%, from $14.8million for the year ended December 31, 2004 to $13.4 million for the yearended December 31, 2005. The occupancy rate, based on available rooms, remainedrelatively flat to 83.4% for the year ended December 31, 2005 from 83.5% forthe year ended December 31, 2004. The number of rooms available for saledeclined by 29,000, or 11.5%, due to rooms that were taken out of service forremodeling. The decline in hotel and other revenue was somewhat offset by anincrease of 2.6% in average daily room rate to $65.66 for the year endedDecember 31, 2005 from $63.99 for the year ended December 31, 2004. There wasalso a general increase in average daily room rates in the Las Vegas market in2005. According to the Las Vegas Convention and Visitors Authority, the LasVegas average daily room rates increase by $13.34, or 14.9%, for the year endedDecember 31, 2005.

 

Hoteland other expenses decreased by 2.4% due to cost savings associated with adecline in rooms to clean and supply.

 

*General and administrative.*General and administrative expense includes costs associated with corporatemarketing, information technology, finance, accounting, and property operations.General and administrative expense increased $0.3 million to $8.1 million forthe year ended December 31, 2005 compared to $7.8 million for the year endedDecember 31, 2004. This increase was principally due to increases in payrollexpenses in finance, accounting, and executive management.

 

*Depreciation expense.*Depreciation expense of $2.3 million for the year ended December 31,2005 increased by $0.1 million, 4.3%, from $2.2 million for the year endedDecember 31, 2004. The increase in depreciation expense was due to additionaldepreciation of fixed asset additions.

35

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*Restructuring costs.*The $0.5 million in restructuring costs incurred during the yearended December 31, 2004 represents various professional fees incurred inconnection with Hôtel San Rémo Casino and Resort’s assessment of its financialalternatives and future business strategies. These fees were incurred as aresult of Hôtel San Rémo Casino and Resort’s events of default under its formerdebt agreements. There were no restructuring costs incurred during the yearended December 31, 2005.

 

*Pre-opening expenses.*Pre-opening expenses are costs associated with the start-up activitiesfor the new Hooters Casino Hotel and consist of salaries and wages, legal,professional, general, and other general administrative expenses. Pre-openingexpenses increased by $4.7 million to $4.8 million for the year ended December31, 2005 compared to $0.1 million during the year ended December 31, 2004 dueto increased start-up activities.

 

*Interest income.*Interest income was $2.0 million for the year ended December 31, 2005,compared to $0.4 million for the year ended December 31, 2004. The increaseresulted from interest income received by 155 East Tropicana, LLC on theinvestment of old notes proceeds for the year ended December 31, 2005.

 

*Interest expense.*Interest expense was $10.2 million for the year ended December 31,2005, compared to $4.1 million for the year ended December 31, 2004, anincrease of $6.1 million. The increase in interest expense is largelyattributable to $9.1 million in interest expense on the $130.0 million inNotes.

 

*Foreign currency translation.*The foreign currency translation income of the Hôtel San Rémo Casinoand Resort resulted from the fluctuations in Japanese Yen denominatedborrowings. These borrowings totaled approximately $23.4 million atDecember 31, 2003 and were paid in full on August 3, 2004. For theyear ended December 31, 2004, currency fluctuations resulted in a gain of$0.7 million. There was no foreign debt outstanding during the year endedDecember 31, 2005.

 

*Loss on extinguishment of debt.*The loss on extinguishment of debt in 2005was related to the payoff of our bank loan with the proceeds of the old notes.

 

*Related party lease income.*During the period from August 3, 2004 through October 31, 2005, 155East Tropicana, LLC leased the hotel casino to Eastern & Western under twoseparate lease agreements. Pursuant to the casino lease agreement, the casino,showroom, liquor servicing areas and other casino related areas were leased for$125,000 per month. Rental income of $1.2 million was received under the casinolease for the year ended December 31, 2005 compared to $0.6 million for theperiod from inception (June 17, 2004) through December 31, 2004. Pursuant tothe hotel lease agreement for the hotel, restaurants, and other areas of thehotel casino property, rental income was $250,000 per month, plus a percentagerent equal to 100% of all revenues received by Eastern & Western from theoperation of the hotel and restaurants, less operating expenses and workingcapital reserves, as defined in the hotel lease agreement. Rental income of$4.2 million was received under the hotel lease for the year ended December 31,2005 compared to $1.5 million for the period from inception (June 17, 2004)through December 31, 2004.

 

*Related party lease expense.*During the period from August 3, 2004 through October 31, 2005, Eastern& Western leased the hotel casino from 155 East Tropicana, LLC (see RelatedParty Lease Income in the paragraph above). Rental expense of $5.4 million and$2.1 million was incurred under the casino and hotel leases for the years endedDecember 31, 2005 and 2004, respectively.

 

*Provision for income taxes.*Income of the Hôtel San Rémo Casino and Resort is included in the taxreturn of S.I. Enterprises, Inc. The provision for income taxes was$0.9 million for the year ended

 

36

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December 31,2004, predicated on income before taxes of $2.8 million, compared to a benefitof $0.4 million for the year ended December 31, 2005, predicated on lossbefore taxes of $1.0 million.

 

155East Tropicana, LLC is a limited-liability company and is treated as apartnership for federal income tax purposes. Accordingly, a provision forfederal income taxes is not recorded on 155 East Tropicana, LLC’s consolidatedfinancial statements. Taxable income or loss will be included in the income taxreturns of the members.

 

***Comparison of Year Ended December 31, 2004 (Combined) with the YearEnded December 31, 2003 (Historical Financial Statements of the Hôtel San Rémo)***

 

Thecombined operations of 155 East Tropicana, LLC and Hôtel San Rémo Casino andResort recorded income before income taxes of $1.9 million for the yearended December 31, 2004 compared with $1.0 million for the year endedDecember 31, 2003. The increase in income was due to the factors discussedbelow:

 

*Casino.*Casinorevenues increased by $1.0 million to $12.7 million for the yearended December 31, 2004, compared to $11.7 million for the year endedDecember 31, 2003. This improvement was largely due to a table games winof $3.6 million for the year ended December 31, 2004, which was anincrease of $0.8 million, or 28.6%, over the prior year’s table games winof $2.8 million. This increase was the result of an increase in table gamedrop of $1.8 million or 10.0%, combined with an increase to 18.5% in thetable game hold percentage from 15.8% in the prior year. The slot revenue of$9.0 million represents an increase of 2.3% for the year endedDecember 31, 2004 over the prior year’s slot revenue of $8.8 million.

 

Theoperating margin for the casino increased from 41.6% of casino revenue duringthe year ended December 31, 2003 to 46.6% in 2004 due to increased casinorevenues with no corresponding increase in expenses.

 

*Food and Beverage.*Food and beverage revenue was $8.0 million for the year endedDecember 31, 2004 as compared to $7.8 million for 2003. Food revenueremained consistent at $5.9 million for both years, with covers in therestaurants declining by 37,000, or 6.1%, offset by a $0.60 increase in theaverage guest check. Gross beverage revenue (which includes complimentarybeverages) increased by $0.2 million, or 10.9%, largely in the category ofcomplimentary beverages served on the casino floor. This increase is consistentwith greater casino volumes experienced during the year ended December 31,2004.

 

Theprofit margin for the food and beverage departments remained relativelyunchanged at 20.2% for the year ended December 31, 2004 as compared to amargin of 21.6% in 2003.

 

*Hotel and other.*Hotel and other revenue increased by $2.3 million, or 18.4%, from$12.5 million for the year ended December 31, 2003 to$14.8 million for 2004. The occupancy rate remained flat at 83.5% for theyear ended December 31, 2004 as compared to 83.5% for the year endedDecember 31, 2003. The improvement in hotel and other revenue was theresult of an increase in average daily room rate from $53.67 for the year endedDecember 31, 2003 to $63.99 for the year ended December 31, 2004. Therewas also a general increase in average daily room rates in the Las Vegas marketin 2004. According to the Las Vegas Convention and Visitors Authority, the LasVegas average daily room rates increased by $7.30, or 8.9%, for the year endedDecember 31, 2004 as compared to the prior year.

 

37

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Thehotel’s room operating margin increased from 65.7% for the year endedDecember 31, 2003 compared to 70.5% for 2004. This increase inprofitability in the hotel is due to higher revenue per room based on theincrease in average daily room rate.

 

*General and administrative.*General and administrative expense includes costs associated withcorporate, marketing, information technology, finance, accounting, and propertyoperations. General and administrative expense increased $1.3 million to$7.9 million for the year ended December 31, 2004 compared to$6.6 million for the year ended December 31, 2003. This increase wasprincipally due to increased payroll expense of $0.5 million. In addition,in August 2004, the Hôtel San Rémo accrued a one-time incentive payment toan executive in the aggregate amount of $0.7 million. This incentivepayment was made pursuant to the joint venture agreement in connection with ourformation.

 

*Depreciation expense.*Depreciation expense of $2.2 million for the year ended December 31,2004 increased $0.1 million, or 2.9%, from $2.1 million in 2003. Thisincrease was the result of a slight increase in depreciable assets year overyear.

 

*Restructuring costs.*The $0.5 million in restructuring costs incurred during the yearended December 31, 2004 represents various professional fees incurred inconnection with the Hôtel San Rémo Casino and Resort’s assessment of itsfinancial alternatives and future business strategies. These fees were incurredas a result of the Hôtel San Rémo Casino and Resort’s events of default underits former debt agreements.

 

*Pre–opening expenses.*Pre–opening expenses are costs associated with the start-up activitiesfor the new Hooters Casino Hotel and consist of salaries and wages, legal,professional, general, and other general administrative expenses. Pre-openingexpenses were $0.1 million during the year ended December 31, 2004. There wereno pre-opening expenses incurred during the year ended December 31, 2003.

 

*Interest income.*Interest income was $0.4 million for the year endedDecember 31, 2004 compared to $0.6 million the prior year. Theinterest was earned on related party notes that carried interest rates between4.1% and 7.5%.

 

*Interest expense.*Interest expense was $4.1 million for the year ended December 31,2004. The increase of $2.9 million, or 248.4%, over the same period in2003 was the result of an increase in the average interest rate fromapproximately 3% in 2003 to 8.6% in 2004 due to additional interest chargedwhile the loans were in default and interest on the loan incurred by 155 EastTropicana, LLC in connection with the acquisition of the Hôtel San Rémo Casinoand Resort, as well as amortization of loan costs in 2004 of $0.4 million.

 

*Foreign currency translation.*The foreign currency translation income (expense) results from thefluctuations in Japanese Yen denominated borrowings. These borrowings totaledapproximately $23.4 million at December 31, 2003 and were paid infull on August 3, 2004. For the year ended December 31, 2004, currencyfluctuations resulted in a gain of $0.7 million. For the year endedDecember 31, 2003, currency fluctuations resulted in a loss of$2.3 million.

 

*Related party lease income.*As of August 3, 2004, Eastern & Western, as tenant, operated thehotel casino under two lease agreements with 155 East Tropicana, LLC, aslandlord (see Related Party Lease Expense in the paragraph below). Pursuant tothe leases, Eastern & Western paid $2.1 million to 155 East Tropicana, LLCfor the year ended December 31, 2004.

 

38

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*Related party lease expense.*As of August 3, 2004, Eastern & Western, as tenant, operated thehotel casino under two lease agreements with 155 East Tropicana, LLC, aslandlord. Pursuant to the casino lease arrangement, the casino, showroom,liquor servicing areas and other casino related areas were leased for $125,000per month. Eastern & Western paid $0.6 million in rent to us underthis casino lease from August 3, 2004 through December 31, 2004. Pursuantto the lease arrangement for the hotel, restaurants and other areas of thehotel casino property, the minimum rent was $250,000 per month plus apercentage rent equal to 100% of all revenues received from operating the hoteland restaurants, less operating expenses and working capital reserve as definedin the hotel lease agreement. Eastern & Western paid $1.5 million inrent to 155 East Tropicana, LLC under this hotel lease from August 3, 2004through December 31, 2004.

 

*Provision for income taxes.*The provision for income taxes for Hôtel San Rémo Casino and Resort was$0.9 million or 31.1% of income before taxes for the year endedDecember 31, 2004 compared to $0.3 million or 30.3% in 2003. Incomeof the Hôtel San Rémo is included in the tax return of S.I. Enterprises, Inc.

 

155East Tropicana, LLC is a limited-liability company and is treated as apartnership for federal income tax purposes. Accordingly, a provision forfederal income taxes is not recorded on 155 East Tropicana, LLC’s consolidatedfinancial statements. Taxable income or loss will be included in the income taxreturns of the members.

 

***Liquidity and Capital Resources (155 East Tropicana, LLC)***

 

Duringthe year ended December 31, 2005, the most significant events affecting ourliquidity and capital resources were cash flows generated from financingactivities of $70.4 million consisting of the successful completion of the$130.0 million old notes offering, whose proceeds were used to payoff existingindebtedness (including interest) of $51.1 million, pay net intercompanypayables of $0.6 million and pay $7.9 million in debt financing costs.

 

Thefollowing schedule summarizes our completed and projected use of the proceedsfrom the old notes offering (in millions):

 

| Payoff of existing debt                                      |   | $    | 51.1   |   |
|--------------------------------------------------------------|--------|------|--------|--------|
| Renovations                                                  |   | 46.5 |   |
| Interest  reserve                                            |   | 11.2 |   |
| Fees and  expenses                                           |   | 6.6  |   |
| Gaming  equipment                                            |   | 1.2  |   |
| Working  capital, pre-opening and general corporate purposes |   | 13.4 |   |
| Total                                                        |   | $    | 130.0  |   |

 

Forthe year ended December 31, 2005, $55.0 million of cash was used in investingactivities, consisting of an increase to restricted funds of $25.3 million,capital expenditures of $26.8 million, and other expenditures of $2.9 million. AtDecember 31, 2005, $29.3 million of the proceeds from the old notes offeringare held as restricted cash.

 

The$26.8 million in renovation activities was spent largely for architectural,design fees, equipment, and building construction. The renovation project whichwill convert the Hôtel San Rémo into the Hooters Casino Hotel was completed inFebruary 2006, and the Hooters Casino Hotel held its grand opening on February3, 2006.

 

39

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TheNotes indenture contains certain provisions which restrict or limit our abilityto, among other things, incur more debt, pay dividends, redeem stock or makeother distributions, enter into transactions with affiliates or transfer orsell assets.

 

Weentered into a $15.0 million senior secured credit facility concurrentlywith the offering of the old notes. The senior credit facility, as amended onJanuary 30, 2006, is a four year revolving credit facility of up to$15.0 million through June 30, 2006, and thereafter, the lesser of $15.0million or three times the trailing twelve month EBITDA (net income (or loss),minus extraordinary gains and interest income, plus interest expense; incometaxes and depreciation and amortization, as further defined in the seniorsecured credit facility), through September 30, 2006, and two timesthereafter; provided that the multiple of EBITDA requirement will not apply ifthe borrowings are less than $7.5 million. EBITDA is defined in the seniorcredit facility and allows for the exclusion of certain expenditures. We didnot have any borrowings outstanding on this credit facility at December 31,2005. On January 30, 2006, the senior secured credit facility was amended toallow us, during the period of February 1, 2006 through June 30, 2006, toobtain advances in the aggregate principal amount of up to $15 million, withoutregard to the multiple of EBITDA requirement. We drew $100,000 against thesenior secured credit facility on January 30, 2006 to pay the bank fee relatedto this amendment.

 

Allof the obligations under the senior secured credit facility are secured byfirst priority liens on and security interests in all of our properties andassets. The lien on the collateral that secures the Notes are contractuallysubordinated (other than the security interests in the renovation disbursementaccount, which is senior and interest reserve accounts, which will not securethe senior secured credit facility) to the liens securing the principal amountof potential borrowings of up $15.0 million (plus related interest, fees,indemnities, costs and expenses) under the senior secured credit facility. Thesenior secured credit facility requires us to pay a fee of 0.50% per annum onany unused portion of the senior secured credit facility, and, if terminatedprior to the third anniversary date, a prepayment premium of 1.00% of themaximum credit amount for each year or partial year remaining from thetermination date to the third anniversary date. The senior secured creditfacility also contains customary financial covenants and other covenants andevents of default. The senior credit facility can be used for additionalworking capital or capital expenditures, at our discretion. At December 31,2005, we met the requirements necessary to borrow the full $15.0 million.

 

Inaddition to the Notes and the senior secured credit facility, we intend toenter into furniture, fixtures and equipment financing of $5.9 million duringthe year ending December 31, 2006.

 

Weused $2.4 million of cash in operating activities during the year endedDecember 31, 2005, principally due to decrease in revenues while expensesremained comparable to previous years.

 

Theexisting operations at the hotel casino continued throughout the renovationperiod, including very limited operations during a training period ofapproximately thirty days prior to the grand opening of Hooters Casino Hotel onFebruary 3, 2006.

 

Webelieve that we have additional flexibility to cover contingencies that mayarise during the continuing first few months of operations of the HootersCasino Hotel through the use of our cash and cash equivalents (which were $14.2million at December 31, 2005), the interest reserve account which covers the$5.7 million payment due on April 1, 2006 on the Notes, our cash flow fromoperations, and our ability to draw against our $15.0 million senior securedcredit facility.

 

Webelieve the cash from operations, and current cash and the available borrowingsunder the senior secured credit facility will be adequate to meet theanticipated working capital, capital expenditure, and debt service obligationsin the immediate future.

 

40

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**ContractualObligations**

 

Thefollowing table summarizes the contractual commitments of 155 East Tropicana,LLC as of December 31, 2005:

 

| ** **                 | ** ** | **Payments Due By Year** | ** ** |
|----------------------------|------------|--------------------------|------------|
| **Total**                  | ** ** | **Less than  1 year**    | ** ** | **1-3 years** | ** ** | **4-5 years** | ** ** | **5 years  thereafter** | ** ** |
| **(dollars in thousands)** | ** ** |
| Construction (1)           |       | $                        | 44,406     |   | $ | 40,728 |   | $ | 3,609 |   | $ | 69 |   | $ | — |   |
| Long-term debt (2)         |       | 130,000                  |       | — |   | — |   | — |   | 130,000 |   |
| Operating contracts (3)    |       | 3,702                    |       | 181 |   | 3,521 |   | — |   | — |   |
| Total                      |       | $                        | 178,108    |   | $ | 40,909 |   | $ | 7,130 |   | $ | 69 |   | $ | 130,000 |   |

 

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(1)   During 2004, 155 East Tropicana, LLC enteredinto various contracts for architectural design for the renovation of theHooters Casino Hotel.

 

(2)   The long-term debt represents the $130.0million Notes issued on March 29, 2005 and due on 2012.

 

(3)   Operating contracts represent variouscontracts for services in connection with the operations of the hotel.

 

***Liquidity and Capital Resources (Hôtel San Rémo Casino and Resort)***

 

EffectiveNovember 1, 2005, 155 East Tropicana, LLC assumed full operations of the HôtelSan Rémo Casino and Resort, and effective that date, the Hôtel San Rémo Casinoand Resort was no longer an operating entity. The following summarizes the cashflows of the Hôtel San Rémo Casino and Resort for the ten months ending October31, 2005.

 

TheHôtel San Rémo Casino and Resort generated cash flows from operating activitiesof $0.5 million.

 

Netcash provided by investing activities totaled approximately $18,000, as cashoutflows for capital expenditures were offset by decreases (uses) of other long-termassets.

 

Netcash used in financing activities totaled $2.1 million, largely a result of theadvances to our affiliates and 155 East Tropicana, LLC of $1.9 million andpayments on long-term debt of $0.2 million.

 

Asa result of the above factors, the Hôtel San Rémo Casino and Resort’s net cashdecreased $1.6 million, from $4.5 million at December 31, 2004 to $2.9 millionat October 31, 2005.

 

***Critical Accounting Policies and Estimates***

 

Managementhas identified the following critical accounting policies that affect the moresignificant judgments and estimates used in the preparation of 155 EastTropicana, LLC’s consolidated financial statements and Hôtel San Rémo Casinoand Resort’s combined financial statements. The preparation of the financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and judgments that affectthe reported amounts of assets and liabilities, revenue and expenses, andrelated disclosures of contingent assets and liabilities.

 

41

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Onan on-going basis, management evaluates those estimates, including thoserelated to asset impairment, accruals for slot marketing points, compensationand related benefits, revenue recognition, allowance for doubtful accounts,contingencies, and litigation. These accounting policies are stated in thenotes to the financial statements and in relevant sections of the managementdiscussion and analysis. These estimates are based on the information currentlyavailable to management and on various other assumptions that managementbelieves to be reasonable under the circumstances. Actual results could varyfrom those estimates and estimates and assumptions may be changed in futureevaluations. Changes in these estimates and assumptions may have a materialeffect on the results of operations and financial condition of 155 EastTropicana, LLC and the results of operations and financial condition of theHôtel San Rémo.

 

Webelieve that the following critical accounting policies affect significantjudgments and estimates used in the preparation of the consolidated financialstatements:

 

*Cash and Cash Equivalents*. We consider all highly liquid investments purchased with originalmaturities of three months or less to be cash equivalents. The carrying amountof cash and equivalents approximates its fair value.

 

*Restricted Cash.*155 East Tropicana, LLC has $29.3 million held in restricted accountsas of December 31, 2005, of which $23.7 million is to be used for theconstruction and renovation of the Hooters Casino Hotel. The remaining amountsare held for debt service requirements.

 

*Accounts Receivable.* Accounts receivable are due within one year and are recorded net ofamounts estimated to be uncollectible. We reserve an estimated amount forreceivables to reduce the receivables to their net realizable value whichapproximate fair value. Historical collection rates and customer relationshipsof the previously operated Hôtel San Rémo Casino and Resort were considered indetermining the reserve for 155 East Tropicana, LLC.

 

*Inventories.*Inventoriesare stated at the lower of cost (using the first-in, first-out method) ormarket values.

 

*Property and Equipment.*Property and equipment are stated at cost. Costs of improvements arecapitalized. Cost of normal repairs and maintenance are charged to expense asincurred. Upon the sale or retirement of property and equipment, the cost andrelated accumulated depreciation are removed from the respective accounts, andthe resulting gain or loss, if any, is included in the accompanyingconsolidated statements of operations.

 

Depreciationis provided on a straight-line basis over the estimated useful life of theassets. The service lives of assets are generally 30 to 40 years forbuildings and 3 to 10 years for furniture and equipment.

 

Thecarrying values of our assets are reviewed when events or changes incircumstances indicate that the carrying amount of the asset may not berecoverable in accordance with Financial Accounting Standards Board, or theFASB Statement No. 144, Accounting for the Impairment or Disposal of Long-livedAssets, or SFAS No. 144. Under SFAS No. 144, an asset impairment isdetermined to exist when events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable and if estimated future cashflows, undiscounted and without interest charges, are less than the carryingamount. If it is determined that an impairment has occurred, then an impairmentloss is recognized in the consolidated statement of operations and the relatedassets are adjusted to their estimated fair value less sales costs.

 

42

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*Deferred Financing Costs.*Deferred financing costs consist of loan origination and commitmentfees and are amortized to interest expense over the term of the relatedfinancing on a straight line basis which approximates the effective interestrate method.

 

*Intangible Assets.*Intangible assets represent (1) the value of intellectual propertyrelated to the Hooters brand contributed to us pursuant to an assignmentagreement with Florida Hooters LLC, (2) the value of the slot club customerlist acquired from Eastern & Western, and (3) the excess of the purchaseprice over the fair market value of the Hôtel San Rémo Casino and Resort assetsacquired, or Goodwill.

 

InJune 2001, the FASB issued Statement of Financial Accounting StandardsNo. 142, *Goodwill and Other Intangible Assets*,or SFAS No. 142. The Company evaluates the amortization periods andpossible impairment of its intangible assets in accordance with SFASNo. 142. The intellectual property related to the Hooters brandcontributed to us and the Goodwill are intangible assets not subject toamortization. The slot customer list is being amortized using the straight linemethod over five years.

 

*Jackpots and Prizes.* We have progressive slot machines. As coins are played, the amountavailable to win increases and will be paid out when the jackpot is awarded. Inaccordance with industry practice, we record the liability and expense relatedto such progressives as incurred.

 

*Casino Revenues and Promotional Allowances.*In accordance with industry practice, werecognize as casino revenue the net win from gaming activities, which is thedifference between gaming wins and losses. The retail value of rooms, food, andbeverage furnished to customers without charge is included in gross revenuesand then deducted as promotional allowances.

 

*Player Club Points.*Our slot club allows customers to earn certain complimentary productsand/or cash, based on the volume of the customer’s gaming activity. 155 EastTropicana, LLC and Hôtel San Rémo Casino and Resort have recorded a liabilityfor the estimated cost of the products and/or cash earned by customers.

 

155East Tropicana, LLC’s slot club program allows customers to redeem pointsearned from their gaming activity for complimentary food, beverage, rooms,entertainment, and merchandise. At the time redeemed, the retail value ofcomplimentaries under the program is recorded as revenue with a correspondingoffsetting amount included in promotional allowances. The cost associated withcomplimentary food, beverage, rooms, entertainment, and merchandise redeemedunder the program is recorded in casino costs and expenses.

 

InFebruary 2001, the Emerging Issues Task Force, or the EITF of the FinancialAccounting Standards Board, reached a consensus in EITF Issue No. 00-22, “Accountingfor ‘Points’ and Certain Other Time-Based or Volume-Based Sales IncentiveOffers, and Offers for Free Products to be Delivered in the Future.”  EITF Issue No. 00-22 requires that theredemption of points for cash be recognized as a reduction of revenue. In accordancewith EITF Issue No. 00-22, 155 East Tropicana, LLC has recorded the cost ofpoints earned and redeemed for complimentary services/cash rebates aspromotional allowances.

 

*Advertising.*Prepaidadvertising costs are expensed the first time the advertising takes place. Advertisingcosts are included in general and administrative expenses.

 

*Capitalized Interest.*The interest cost associated with a major construction project iscapitalized and included in the cost of the project. When no debt is incurredspecifically for a project, interest is

 

43

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capitalizedon amounts expended on the project using the weighted-average cost of ouroutstanding borrowings.

 

*Income Taxes.*155East Tropicana, LLC is a limited liability company and is taxed as apartnership for federal income tax purposes. Accordingly, no provision forfederal income taxes has been recorded in the accompanying consolidatedfinancial statements since the taxable income or loss is included in the incometax return of the members.

 

HôtelSan Rémo Casino and Resort accounted for income taxes under SFAS No. 109, *Accounting for Income Taxes*, or SFAS No. 109, wherebydeferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementscarrying amounts of existing assets and liabilities and their respective taxbases. Deferred tax assets and liabilities were measured using enacted taxrates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. Under SFAS No. 109, theeffect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that included the enactment date.

 

*Pre-opening Expenses.*Pre-opening costs are expensed as incurred, consistent with Statementof Position 98-5, Reporting on the Costs of Start-up Activities.

 

*Use of Estimates.*The preparation of financial statements in conformity with generallyaccepted accounting principles in the United States requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements, and the reported amounts revenues and expenses duringthe reporting periods. Actual results could differ from those estimates.

 

## **ITEM 7A.**       QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.

## ** **

Thefollowing discusses 155 East Tropicana’s exposure to market risk related tochanges in interest rates, equity prices and foreign currency exchange rates. 155East Tropicana, LLC does not believe that their respective exposure to marketrisk is material.

 

Marketrisk is risk of loss arising from changes in market rates and prices, such asinterest rates, foreign currency exchange rates and commodity prices. AtDecember 31, 2005, 155 East Tropicana, LLC had $130,000,000 aggregate principalamount Senior Secured Notes due April 2, 2012. The Notes carry a fixed interestrate of 83⁄4 %, provided no events of default have occurred. 155 East Tropicana,LLC also has market risk associated with funds that may be borrowed on the$15.0 million senior secured credit facility, due to an interest rate thatfloats with the LIBOR or prime rate. The term of the senior secured creditfacility will mature on March 30, 2009. No amounts are outstanding under thisvariable rate credit facility at December 31, 2005.

 

**155 East Tropicana, LLC does not have any significant foreign currencyexchange rate risk or commodity price risk and do not currently trade anymarket sensitive instruments.**

 

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## **ITEM 8.**          FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA.

## ** **

**INDEX TO FINANCIAL STATEMENTS**

** **

The following consolidated financial statements of 155 East Tropicana,LLC and the combined financial statements of Hôtel San Rémo Casino and Resortare presented herein on the pages indicated:

 
| **155 EAST TROPICANA, LLC**                              |   |
|----------------------------------------------------------|--------|
| ** **                                               |   |
| **AUDITED  CONSOLIDATED FINANCIAL STATEMENTS:**          |   |
|                                                     |   |
| Report of Independent Registered Public Accounting Firm  | 46     |
|                                                     |   |
| Consolidated Balance Sheets                              | 47     |
|                                                     |   |
| Consolidated Statements of Operations                    | 48     |
|                                                     |   |
| Consolidated Statements of Members’ Equity          | 49     |
|                                                     |   |
| Consolidated Statements of Cash Flows                    | 50     |
|                                                     |   |
| Notes to Consolidated Financial Statements               | 52     |
|                                                     |   |
| **HÔTEL SAN RÉMO CASINO AND RESORT**           |   |
| ** **                                               |   |
| **AUDITED  COMBINED FINANCIAL STATEMENTS:**              |   |
|                                                     |   |
| Report of Independent Registered Public  Accounting Firm | 67     |
|                                                     |   |
| Combined Balance Sheets                                  | 68     |
|                                                     |   |
| Combined Statements of Operations                        | 69     |
|                                                     |   |
| Combined Statements of Division Equity  (Deficit)        | 70     |
|                                                     |   |
| Combined Statements of Cash Flows                        | 71     |
|                                                     |   |
| Notes to Combined Financial Statements                   | 73     |
|                                                     |   |

 

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### **Report ofIndependent Registered Public Accounting Firm**

### ** **

**To the Members of 155 East Tropicana, LLC:**

 

We have audited the accompanying consolidated balance sheets of 155East Tropicana, LLC and subsidiary as of December 31, 2005 and 2004, and therelated consolidated statements of operations, members’ equity, and cash flowsfor the year ended December 31, 2005 and for the period from inception (June17, 2004) through December 31, 2004. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof 155 East Tropicana, LLC and subsidiary at December 31, 2005 and 2004, andthe consolidated results of their operations and their cash flows for the yearended December 31, 2005 and for the period from inception (June 17, 2004)through December 31, 2004, in conformity with U.S. generally acceptedaccounting principles.

 
|               |   | /s/ Ernst & Young LLP |
|--------------------|--------|---------------------------|
|               |   |                      |
|               |   |                      |
| Las  Vegas, Nevada |   |                      |
| March  17, 2006    |   |                      |

### ** **

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### **155 EASTTROPICANA, LLC(A NEVADA LIMITED LIABILITY COMPANY)**

### ** **

### **CONSOLIDATEDBALANCE SHEETS**

### ** **

| ** **                                                                                                     | ** ** | **December 31,  2005** | ** **  | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|------------------------|------------|
| **Assets**                                                                                                     |       |                   |        |                   |       |
| Current  assets:                                                                                               |       |                   |        |                   |       |
| Cash and cash equivalents                                                                                      |       | $                      | 14,191,385  |                   | $          | 1,220,851 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $110,017 and $0 in 2005 and 2004, respectively |       | 647,776                |        | 8,300                  |       |
| Due from Hotel San Remo                                                                                        |       | 30,508                 |        | —                 |       |
| Inventories                                                                                                    |       | 146,339                |        | —                 |       |
| Prepaid expenses                                                                                               |       | 775,836                |        | 56,771                 |       |
| Total current assets                                                                                           |       | 15,791,844             |        | 1,285,922              |       |
| Property and equipment, net                                                                                    |       | 103,264,703            |        | 67,665,688             |       |
| Other long-term assets:                                                                                        |       |                   |        |                   |       |
| Restricted cash                                                                                                |       | 29,345,513             |        | 4,000,000              |       |
| Deferred financing costs                                                                                       |       | 7,286,738              |        | 1,428,325              |       |
| Intangible assets                                                                                              |       | 6,609,028              |        | 1,100,000              |       |
| Other assets                                                                                                   |       | 861,565                |        | 100,000                |       |
| Total other long-term assets                                                                                   |       | 44,102,844             |        | 6,628,325              |       |
| Total assets                                                                                                   |       | $                      | 163,159,391 |                   | $          | 75,579,935 |   |
|                                                                                                           |       |                   |        |                   |       |
| **Liabilities  and Members’ Equity**                                                                      |       |                   |        |                   |       |
| Current  liabilities:                                                                                          |       |                   |        |                   |       |
| Due to Hotel San Remo                                                                                          |       | $                      | —      |                   | $          | 1,760,434 |   |
| Accounts payable                                                                                               |       | 3,323,099              |        | —                 |       |
| Construction payable                                                                                           |       | 6,034,450              |        | —                 |       |
| Accrued interest payable                                                                                       |       | 2,864,396              |        | —                 |       |
| Accrued liabilities                                                                                            |       | 1,384,649              |        | —                 |       |
| Total current liabilities                                                                                      |       | 13,606,594             |        | 1,760,434              |       |
| Long-term  debt                                                                                                |       | 130,000,000            |        | 48,500,000             |       |
| Total liabilities                                                                                              |       | 143,606,594            |        | 50,260,434             |       |
|                                                                                                           |       |                   |        |                   |       |
| Commitments  and contingencies                                                                                 |       |                   |        |                   |       |
|                                                                                                           |       |                   |        |                   |       |
| Members’  equity:                                                                                         |       |                   |        |                   |       |
| Membership interests                                                                                           |       | 34,333,375             |        | 26,233,375             |       |
| Accumulated deficit                                                                                            |       | (14,780,578            | )           | (913,874               | )          |
|                                                                                                           |       | 19,552,797             |        | 25,319,501             |       |
| Total liabilities and members’ equity                                                                     |       | $                      | 163,159,391 |                   | $          | 75,579,935 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

47

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**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF OPERATIONS**

 
| ** **                                                                                                                                                                                             | ** ** | **Year Ended  December 31,  2005** | ** **  | **For the Period  from Inception  (June 17, 2004) through December  31,  2004** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|-------------|---------------------------------------------------------------------------------|------------|
| Operating  revenues:                                                                                                                                                                                   |       |                               |        |                                                                            |       |
| Casino                                                                                                                                                                                                 |       | $                                  | 1,027,215   |                                                                            | $          | — |   |
| Food and beverage                                                                                                                                                                                      |       | 662,044                            |        | —                                                                          |       |
| Hotel and other                                                                                                                                                                                        |       | 1,174,324                          |        | —                                                                          |       |
| Related party lease income                                                                                                                                                                             |       | 5,439,324                          |        | 2,150,382                                                                       |       |
|                                                                                                                                                                                                   |       | 8,302,907                          |        | 2,150,382                                                                       |       |
| Less  promotional allowances                                                                                                                                                                           |       | (301,841                           | )           | —                                                                          |       |
| Net  operating revenues                                                                                                                                                                                |       | 8,001,066                          |        | 2,150,382                                                                       |       |
|                                                                                                                                                                                                   |       |                               |        |                                                                            |       |
| Operating  expenses:                                                                                                                                                                                   |       |                               |        |                                                                            |       |
| Casino                                                                                                                                                                                                 |       | 1,087,795                          |        | —                                                                          |       |
| Food and beverage                                                                                                                                                                                      |       | 1,140,854                          |        | —                                                                          |       |
| Hotel and other                                                                                                                                                                                        |       | 641,254                            |        | —                                                                          |       |
| General and administrative                                                                                                                                                                             |       | 1,444,397                          |        | —                                                                          |       |
| Depreciation and amortization                                                                                                                                                                          |       | 1,956,172                          |        | 777,133                                                                         |       |
| Pre-opening expenses                                                                                                                                                                                   |       | 4,824,498                          |        | 103,409                                                                         |       |
| Total  operating expenses                                                                                                                                                                              |       | 11,094,970                         |        | 880,542                                                                         |       |
| Operating  (loss) income                                                                                                                                                                               |       | (3,093,904                         | )           | 1,269,840                                                                       |       |
|                                                                                                                                                                                                   |       |                               |        |                                                                            |       |
| Other income  (expense):                                                                                                                                                                               |       |                               |        |                                                                            |       |
| Interest expense, net of capitalized  interest of $692,059 and $22,036 for the year ended December 31, 2005 and for  the period from inception (June 17, 2004) through December 31, 2004, respectively |       | (10,155,864                        | )           | (2,183,714                                                                      | )          |
| Interest income                                                                                                                                                                                        |       | 1,629,590                          |        | —                                                                          |       |
| Loss on extinguishment of debt                                                                                                                                                                         |       | (2,246,526                         | )           | —                                                                          |       |
| Other income  (expense), net                                                                                                                                                                           |       | (10,772,800                        | )           | (2,183,714                                                                      | )          |
| Net loss                                                                                                                                                                                               |       | $                                  | (13,866,704 | )                                                                               | $          | (913,874 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

48

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**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF MEMBERS’ EQUITY**

### ** **

| ** **                                          | ** ** | **Florida Hooters  LLC** | ** ** | **EW Common   LLC** | ** ** | **Total**   | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|---------------------|------------|-------------|------------|
| Balance at  Inception (June 17, 2004)               |       | $                        | —     |                | $          | —      |       | $ | — |   |
| Florida  Hooters LLC:                               |       |                     |       |                |       |        |       |
| Cash contribution                                   |       | 5,133,375                |       | —              |       | 5,133,375   |       |
| Assignment of agreements for intellectual  property |       | 1,100,000                |       | —              |       | 1,100,000   |       |
| EW Common  LLC:                                     |       |                     |       |                |       |        |       |
| Deemed capital contribution                         |       | —                   |       | 20,000,000          |       | 20,000,000  |       |
| Net loss                                            |       | (609,249                 | )          | (304,625            | )          | (913,874    | )          |
| Balance at  December 31, 2004                       |       | 5,624,126                |       | 19,695,375          |       | 25,319,501  |       |
| Florida  Hooters LLC:                               |       |                     |       |                |       |        |       |
| Assignment of agreements for intellectual  property |       | 3,100,000                |       | —              |       | 3,100,000   |       |
| EW Common  LLC:                                     |       |                     |       |                |       |        |       |
| Deemed capital contribution                         |       | —                   |       | 5,000,000           |       | 5,000,000   |       |
| Net loss  during the year ended December 31, 2005   |       | (9,244,469               | )          | (4,622,235          | )          | (13,866,704 | )          |
| Balance at  December 31, 2005                       |       | $                        | (520,343   | )                   | $          | 20,073,140  |       | $ | 19,552,797 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

49

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**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

### ** **

| ** **                                                                       | ** ** | **Year Ended  December 31,  2005** | ** **  | **For the Period from  Inception  (June 17, 2004)  through  December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------|-------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                       | ** ** | ** **                         | ** **  | ** **                                                                       | ** ** |
| **Cash  Flow From Operating Activities**                                         |       |                               |        |                                                                             |       |
| Net loss                                                                         |       | $                                  | (13,866,704 | )                                                                                | $          | (913,874 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                               |        |                                                                             |       |
| Depreciation and  amortization                                                   |       | 1,956,172                          |        | 777,133                                                                          |       |
| Amortization of  debt issuance costs                                             |       | 1,164,026                          |        | 375,875                                                                          |       |
| Amortization of  intangible asset                                                |       | 8,652                              |        | —                                                                           |       |
| Loss on  extinguishment of debt                                                  |       | 2,246,526                          |        | —                                                                           |       |
| Changes in  assets and liabilities:                                              |       |                               |        |                                                                             |       |
| Accounts  receivable                                                             |       | (639,476                           | )           | (8,300                                                                           | )          |
| Inventories                                                                      |       | (146,339                           | )           | —                                                                           |       |
| Prepaid expenses                                                                 |       | (719,065                           | )           | (56,762                                                                          | )          |
| Accounts payable                                                                 |       | 3,323,099                          |        | —                                                                           |       |
| Accrued interest  payable                                                        |       | 2,864,396                          |        | —                                                                           |       |
| Accrued  liabilities                                                             |       | 1,384,649                          |        | —                                                                           |       |
| Net cash (used  in) provided by operating activities                             |       | (2,424,064                         | )           | 174,072                                                                          |       |
|                                                                             |       |                               |        |                                                                             |       |
| **Cash  Flow From Investing Activities**                                         |       |                               |        |                                                                             |       |
| Acquisition of  Hotel San Remo — transaction costs and expenses             |       | (2,158,131                         | )           | (46,212,689                                                                      | )          |
| Capital  expenditures                                                            |       | (32,814,738                        | )           | (975,849                                                                         | )          |
| Increase in  construction payable                                                |       | 6,034,450                          |        | —                                                                           |       |
| Change in restricted  cash                                                       |       | (25,345,513                        | )           | (4,000,000                                                                       | )          |
| Decrease in  other assets                                                        |       | (761,565                           | )           | (100,000                                                                         | )          |
| Net cash used in  investing activities                                           |       | $                                  | (55,045,497 | )                                                                                | $          | (51,288,538 | ) |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

50

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**

** **
| ** **                                                                                            | ** ** | **Year Ended  December 31,  2005** | ** ** | **For the Period from  Inception  (June 17, 2004)  through  December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                                            | ** ** | ** **                         | ** ** | ** **                                                                       | ** ** |
| **Cash  Flow From Financing Activities**                                                              |       |                               |       |                                                                             |       |
| Cash contributions  from Florida Hooters LLC                                                          |       | $                                  | —     |                                                                             | $          | 5,133,375 |   |
| Payment of debt  financing costs                                                                      |       | (7,907,213                         | )          | (1,804,200                                                                       | )          |
| Extinguishment  of debt                                                                               |       | (48,500,000                        | )          | —                                                                           |       |
| Loan penalties  from extinguishment of debt                                                           |       | (1,361,750                         | )          | —                                                                           |       |
| Proceeds from  issuance of long-term debt                                                             |       | 130,000,000                        |       | 48,500,000                                                                       |       |
| Due to/from  Hotel San Remo                                                                           |       | (1,790,942                         | )          | 506,142                                                                          |       |
| Net cash  provided by financing activities                                                            |       | 70,440,095                         |       | 52,335,317                                                                       |       |
|                                                                                                  |       |                               |       |                                                                             |       |
| Increase in cash  and cash equivalents                                                                |       | 12,970,534                         |       | 1,220,851                                                                        |       |
| Cash and cash  equivalents, beginning of period                                                       |       | 1,220,851                          |       | —                                                                           |       |
| Cash and cash  equivalents, end of period                                                             |       | $                                  | 14,191,385 |                                                                             | $          | 1,220,851 |   |
|                                                                                                  |       |                               |       |                                                                             |       |
| **Supplemental  disclosure of cash flow information**                                                 |       |                               |       |                                                                             |       |
| Cash paid for  interest, net of capitalized interest                                                  |       | $                                  | 6,817,694  |                                                                             | $          | 1,807,839 |   |
|                                                                                                  |       |                               |       |                                                                             |       |
| Noncash  investing and financing activities:                                                          |       |                               |       |                                                                             |       |
| Contribution by  Florida Hooters LLC of intangible  assets  pursuant to assignment agreements    |       | $                                  | 3,100,000  |                                                                             | $          | 1,100,000 |   |
|                                                                                                  |       |                               |       |                                                                             |       |
| Due to Hotel San  Remo - amount due to existing owner                                                 |       | $                                  | —     |                                                                             | $          | 1,254,292 |   |
|                                                                                                  |       |                               |       |                                                                             |       |
| Deemed capital  contribution - issuance of membership interest with priority return to EW  Common LLC |       | $                                  | 5,000,000  |                                                                             | $          | 20,000,000 |   |

 

*Theaccompanying notes are an integral part of these consolidated financial**statements.*

 

51

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

### ** **

**December 31, 2005**

 

**1.  Organizationaland Basis of Presentation**

** **

155 East Tropicana, LLC, a Nevada limited-liabilitycompany (the “Company”) was incorporated on June 17, 2004 to acquire thereal and personal property of the Hôtel San Rémo in Las Vegas, Nevada with theintention of renovating the existing casino and hotel facility with a “Hooters”entertainment concept and theme. The renovations were completed and the HôtelSan Rémo Casino and Resort (the “Hôtel San Rémo”) property was reopened as thenew Hooters Casino Hotel on February 3, 2006. The Company’s business isconcentrated at the one casino and hotel property in Las Vegas, Nevada. Therenovations were financed by the Company and its wholly owned subsidiary, 155East Tropicana Finance Corp. through a $130 million Senior Secured Notesoffering on March 29, 2005. The Company’s membership interests are heldtwo-thirds through Florida Hooters LLC and one-third through EW Common LLC. Theinitial capitalization of the Company was provided by Florida Hooters LLC inthe form of a $5.0 million cash contribution and the assignment of rightswith respect to the Hooters trademark and logo and other intellectual propertyand by EW Common LLC in the form of a $25.0 million deemed capitalcontribution. The deemed capital contribution from EW Common LLC carries withit a priority return of four percent of the contribution annually. The paymentof this priority return is subject to meeting certain financial covenantsassociated with the Company’s debt.

 

Florida Hooters LLC is a joint venture betweenHooters Gaming LLC and Lags Ventures, LLC. Hooters Gaming LLC is owned by theholders of licenses to operate Hooters restaurants in the Tampa Bay, Florida,Chicago, Illinois and downtown Manhattan in New York as well as for the sale ofwholesale foods and calendars and Nevada hotel/gaming and includes most of theoriginal founders of the Hooters brand. Pursuant to these license rights, theowners of Florida Hooters LLC operate 39 Hooters restaurants, publish Hooterscalendars and operate a Hooters food business. Lags Ventures, LLC is owned by aholder of the license rights to Hooters restaurants in South Florida and theState of Nevada. The owner of Lags Ventures, LLC is also the founder of the DanMarino concept restaurants and owns and operates four Dan Marino conceptrestaurants.

 

EW Common LLC is owned 90% by Eastern &Western Hotel Corporation (“Eastern & Western”) and 10% by Michael J.Hessling. Eastern & Western is beneficially owned by Sukeaki andToyoroku Izumi. Eastern & Western and its affiliates owned the realproperty and non-gaming assets of Hôtel San Rémo from November 1988 untilthe Company’s acquisition of the Hôtel San Rémo in August 2004. Mr. Hesslingserved as the executive vice president and the chief operating officer of theHôtel San Rémo from January 1989 until the acquisition, at which time hebecame the chief operating officer of the Company.

 

52

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

**1.  Organizational andBasis of Presentation (continued)**

 

Florida Hooters LLC and EW Common LLC entered into ajoint venture agreement for the purpose of forming the Company and documentingthe terms of their investments and business venture. Under the terms of thejoint venture agreement, the venture progressed in three stages. The firststage involved the formation of the Company and the conveyance of all the realand non-gaming personal property owned by and associated with the Hôtel SanRémo, the leaseback under operating lease arrangements of these assets to Eastern &Western pursuant to the casino and hotel lease agreements described inNote 8, and the contribution through assignment agreements of certainintellectual property rights to the Company by the respective members ofFlorida Hooters LLC. The second stage related to the raising of financing tofund the redesign and renovation of the Hôtel San Rémo into the Hooters CasinoHotel, the refinancing of the Company’s current debt structure and otherworking capital requirements, which was completed on March 29, 2005. The finalstage involves the securing of all licenses necessary to conduct gaming at thehotel casino and the subsequent termination of the hotel and casino leases. InOctober 2005, the Company secured their gaming and liquor licenses and onNovember 1, 2005, assumed the operations of the existing Hôtel San Rémo hoteland casino. The hotel and casino leases with Eastern & Western wereterminated on October 31, 2005.

 

Pursuant to the joint venture agreement, FloridaHooters LLC and EW Common LLC entered into an operating agreement. Under theterms of the operating agreement, Florida Hooters LLC has the right to appointsix managers and EW Common LLC has the right to appoint three managers to amanagement board. Certain transactions, including key operational matters, thesale of all or substantially all of the Company’s assets, a merger orconsolidation and various governance matters require the unanimous approval ofthe management board.

 

Prior to November 1, 2005, the Company had conductedno business other than in connection with the acquisition and subsequentleasing of the Hôtel San Rémo, and was considered a development stage company. TheHôtel San Rémo is a division of S.I. Enterprises, Inc., a Nevada corporation. ThroughOctober 31, 2005, Eastern & Western held the gaming license in Nevadaand owned all gaming assets used by Hôtel San Rémo. Commencing November 1,2005, all operations, assets and liabilities of the former Hôtel San Rémo hoteland casino are included in the Company’s financial statements, and effectivethat date the Company was no longer in the development stages.

 

On February 3, 2006, the new Hooters Casino Hotelwas opened for business.  The Hooters Casino Hotel features a casino floorwith 658 slot and video poker machines, 31 table games, 696 newly renovatedhotel rooms including 17 suites, a tropical pool area, retail outlets, a dayspa, and dining and entertainment options which include a Hooters restaurant,Dan Marino’s Fine Food, a coffee shop restaurant, a sports bar, and severalbars.

 

53

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

**1.  Organizational andBasis of Presentation (continued)**

 

The renovations included a redesign of the mainentrance, a renovation and expansion of the casino and restaurant areas, aremodel of the hotel rooms and a renovation and expansion of the pool area.

 

**2.  Acquisition**

** **

In August 2004, the Companyagreed to the acquisition of the real property and other assets of the HôtelSan Rémo for approximately $72.5 million including transaction costs andexpenses, and subject to purchase price adjustments at the date of licensing(October 31, 2005). Initially, the Company acquired $67.5 million of the realproperty and non-gaming assets and agreed that the remaining $5.0 million in gamingassets would be transferred to the Company upon obtaining the gaming and liquorlicenses necessary to assume operations of the hotel and casino. Theacquisition was funded by the Company through a term loan totaling$48.5 million which was used to extinguish the Hôtel San Rémo’s existingindebtedness of $43.7 million, a commitment to pay the existing owner ofHôtel San Rémo $1.3 million, and the issuance to EW Common LLC of a 33 1/3%membership interest with priority return valued at $25.0 million.

 

The acquisition of the Hôtel San Rémo has beenaccounted for as a purchase. The following table sets forth the determinationof the total purchase price (in thousands):

 
| Membership  interest with priority return                                            |   | $      | 25,000 |   |
|--------------------------------------------------------------------------------------|--------|--------|--------|--------|
| Cash paid to  former owner of Hôtel San Rémo                               |   | 1,254  |   |
| Pay-off of Hôtel  San Rémo debt                                            |   | 43,746 |   |
| Transaction  costs and expenses                                                      |   | 2,467  |   |
| Final purchase price  adjustments paid (inclusive of $1,127,628 described in Note 9) |   | 2,158  |   |
|                                                                                 |   | $      | 74,625 |   |

 

The allocation of the purchase price to theunderlying Hôtel San Rémo assets acquired was as follows (in thousands):

 
| Land                                                                |   | $      | 38,932 |   |
|---------------------------------------------------------------------|--------|--------|--------|--------|
| Buildings and  improvements                                         |   | 31,242 |   |
| Furniture, fixtures  and equipment                                  |   | 2,033  |   |
| Slot customer  list                                                 |   | 260    |   |
| Excess of  purchase price over fair market value of assets acquired |   | 2,158  |   |
|                                                                |   | $      | 74,625 |   |

 

54

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**2.  Acquisition(continued)**

 

In 2005, the Company utilized a third-party appraiserto finalize the purchase price of the assets acquired. Also during 2005, theCompany and Hôtel San Rémo agreed on the final purchase price adjustments, inthe amount of $2,158,000, which was recorded by the Company in the accompanyingconsolidated balance sheet as additional goodwill.

** **

**3.  Summaryof Significant Accounting Principles**

** **

*Cash and Cash Equivalents.*The Company considers allhighly liquid investments purchased with original maturities of three months orless to be cash equivalents. The carrying amount of cash and equivalentsapproximates its fair value.

 

*Restricted Cash.*The Company has $29.3 million held inrestricted accounts as of December 31, 2005, of which $23.7 million is to beused for the construction and renovation of the Hooters Casino Hotel. Theremaining amounts are held for debt service requirements.

 

*Accounts Receivable.* Accounts receivable are duewithin one year and are recorded net of amounts estimated to be uncollectible. TheCompany reserves an estimated amount for receivables to reduce the receivablesto their net realizable value which approximate fair value. Historicalcollection rates and customer relationships of the previously operated HôtelSan Rémo were considered in determining the reserve. Bad debt expense was$10,000 and $0 for the year ended December 31, 2005 and the period frominception (June 17, 2004) through December 31, 2004, respectively.

 

*Inventories.*Inventories are stated at the lower of cost(using the first-in, first-out method) or market values.

 

*Property and Equipment.*Property and equipment arestated at cost. Costs of improvements are capitalized. Cost of normal repairsand maintenance are charged to expense as incurred. Upon the sale or retirementof property and equipment, the cost and related accumulated depreciation areremoved from the respective accounts, and the resulting gain or loss, if any,is included in the accompanying consolidated statements of operations.

 

Depreciation is provided on a straight-line basisover the estimated useful life of the assets. The service lives of assets aregenerally 30 to 40 years for buildings and 3 to 10 years for furnitureand equipment.

 

The carrying values of the Company’s assets arereviewed when events or changes in circumstances indicate that the carryingamount of the asset may not be recoverable in accordance with FinancialAccounting Standards Board (FASB) Statement No. 144, *Accountingfor the Impairment or Disposal of Long-lived Assets.* Under SFASNo. 144, an asset impairment is determined to exist when events or changesin circumstances indicate that the carrying amount of an asset may not berecoverable and if estimated future cash flows, undiscounted and withoutinterest charges, are less than the carrying amount. If it is determined thatan impairment has occurred, then an impairment loss is recognized in theconsolidated statement of operations and the related assets are adjusted totheir estimated fair value less sales costs.

 

55

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**3.  Summaryof Significant Accounting Principles (continued)**

** **

*Deferred Financing Costs.*Deferred financing costsconsist of loan origination and commitment fees and are amortized to interestexpense over the term of the related financing on a straight line basis whichapproximates the effective interest rate method.

 

*Intangible Assets.*Intangible assets represent(1) the value of intellectual property related to the Hooters brand contributedto the Company pursuant to an assignment agreement with Florida Hooters LLC,(2) the value of the slot club customer list acquired for Eastern &Western, and (3) the excess of the purchase price over the fair market value ofthe assets acquired (“Goodwill”).

 

The Company evaluates the amortization periods andpossible impairment of its intangible assets in accordance with Statement ofFinancial Accounting Standards No. 142, *Goodwill and otherIntangable Assets*. The intellectual property related to the Hootersbrand contributed to the Company and the Goodwill are intangible assets not subjectto amortization. The slot customer list is being amortized using the straightline method over five years.

 

*Jackpots and Prizes.* The Company has progressiveslot machines. As coins are played, the amount available to win increases andwill be paid out when the jackpot is awarded. In accordance with industrypractice, the Company records the liability and expense related to suchprogressives as incurred.

 

*Casino Revenues and Promotional Allowances*. In accordancewith industry practice, the Company recognizes as casino revenue the net winfrom gaming activities, which is the difference between gaming wins and losses.The retail value of rooms, food, and beverage furnished to customers withoutcharge is included in gross revenues and then deducted as promotionalallowances.

 

The estimated departmental cost of providing suchpromotional allowances is included in casino costs and expenses and consist ofthe following (dollars in thousands):

 
| ** **         | ** ** | **Year ended**   | ** ** |
|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **December 31,** | ** ** |
| ** **         | ** ** | **2005**              | ** ** |
| Food and  beverage |       | $                     | 93         |   |
| Hotel and other    |       | 30                    |       |
|               |       | $                     | 123        |   |

 

56

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**3.  Summaryof Significant Accounting Principles (continued)**

** **

*Player Club Points.*The Company’s slot cluballows customers to earn certain complimentary products and/or cash, based onthe volume of the customer’s gaming activity. The Company has recorded aliability for the estimated cost of the products and/or cash earned bycustomers.

 

The Company’s slot club program allows customers toredeem points earned from their gaming activity for complimentary food,beverage, rooms, entertainment, and merchandise. At the time redeemed, theretail value of complimentaries under the program is recorded as revenue with acorresponding offsetting amount included in promotional allowances. The costassociated with complimentary food, beverage, rooms, entertainment, andmerchandise redeemed under the program is recorded in casino operatingexpenses.

 

In February 2001, the Emerging Issues Task Force, orthe EITF of the Financial Accounting Standards Board reached a consensus inEITF Issue No. 00-22, “Accounting for ‘Points’ and Certain Other Time-Based orVolume-Based Sales Incentive Offers, and Offers for Free Products to beDelivered in the Future.”  EITF Issue No.00-22 requires that the redemption of points for cash be recognized as areduction of revenue. In accordance with EITF Issue No. 00-22, the Company hasrecorded the retail value of points earned and redeemed for complimentaryservices/cash rebates as promotional allowances. Such amounts totaled $13,895 forthe year ended December 31, 2005.

 

*Advertising.*Prepaid advertising costs are expensed thefirst time the advertising takes place. Prepaid advertising included in prepaidexpenses was $273,796 at December 31, 2005. Advertising costs included ingeneral and administrative expenses were $157,778 for the year ended December31, 2005.

 

*Capitalized Interest.*The interest cost associatedwith a major construction project is capitalized and included in the cost ofthe project. When no debt is incurred specifically for a project, interest iscapitalized on amounts expended on the project using the weighted-average costof the Company’s outstanding borrowings. Capitalized interest was $692,059 and$22,036 for the years ended December 31, 2005 and for the period from inception(June 17, 2004) through December 31, 2004, respectively.

 

*Income Taxes.*The Company is a limited liability companyand is taxed as a partnership for federal income tax purposes. Accordingly, noprovision for federal income taxes has been recorded in the accompanyingconsolidated financial statements since the taxable income or loss is includedin the income tax return of the members.

 

*Pre-opening Expenses.*Pre-opening costs areexpensed as incurred, consistent with Statement of Position 98-5, *Reporting on the Costs of Start-up Activities*.

 

57

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**3.  Summaryof Significant Accounting Principles (continued)**

** **

*Use of Estimates.*The preparation of financialstatements in conformity with generally accepted accounting principles in theUnited States requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements, and thereported amounts revenues and expenses during the reporting periods. Actualresults could differ from those estimates.

 

*Recently Issued Accounting Pronouncements.*InJanuary 2003, the FASB issued Interpretation No. 46R, or FIN 46R, *Consolidation of Variable Interest Entities*. The objectiveof FIN 46 is to improve financial reporting by companies involved with variableinterest entities. FIN 46 changes certain consolidation requirements byrequiring a variable interest entity to be consolidated by a company that issubject to a majority of the risk of loss from the variable interest entitiesactivities or receive a majority of the entity’s residual returns or both. Theadoption of FIN 46 did not have a material impact on the financial statementsof the Company.

 

In December 2004, the FASB issued Statement ofFinancial Accounting Standards No. 153, *Exchanges ofNonmonetary Assets - an amendment of APB Opinion No. 29.* SFASNo. 153 amends APB Opinion No. 29 to eliminate the exception fornonmonetary exchanges of similar productive assets and replaces it with ageneral exception for exchanges of nonmonetary assets that do not havecommercial substance. SFAS No. 153 will apply to nonmonetary exchangesoccurring in fiscal years beginning after June 15, 2005. The adoption ofSFAS No. 153 is not expected to have a material impact on the financialstatements of the Company.

 

In November 2004, the FASB issued SFAS No. 151, *Inventory Costs*. The statement is effective for inventorycosts incurred during fiscal years beginning after June 15, 2005. We arecurrently evaluating the provisions of SFAS No. 151 to determine its impact onour future financial statements.

 

*Reclassifications.*Certain amounts in the prioryear’s financial statements have been reclassified to conform to the currentyear’s presentation.

 

58

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### ** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

**4.  Property andEquipment**

 

Property and equipment consists of the following atDecember 31, 2005 and 2004 (dollars in thousands):

 
| ** **                         | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|
| Land                               |       | $        | 38,932     |     | $          | 26,760 |   |
| Buildings and  improvements        |       | 33,886   |       | 39,783   |       |
| Furniture,  fixtures and equipment |       | 3,438    |       | 947      |       |
| Construction in  progress          |       | 29,742   |       | 953      |       |
| Subtotal                           |       | 105,998  |       | 68,443   |       |
| Less:  accumulated depreciation    |       | (2,733   | )          | (777     | )          |
| Property and  equipment, net       |       | $        | 103,265    |     | $          | 67,666 |   |

** **

**5.  IntangibleAssets**

** **

Intangible assets consist of the following atDecember 31, 2005 and 2004 (dollars in thousands):

 
| ** **                                           | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
| Intellectual  property                               |       | $        | 4,200      |     | $          | 1,100 |   |
| Slot customer  list                                  |       | 260      |       | —   |       |
| Goodwill                                             |       | 2,158    |       | —   |       |
| Subtotal                                             |       | 6,618    |       | 1,100    |       |
| Less:  accumulated amortization (slot customer list) |       | (9       | )          | —   |       |
| Intangible  assets, net                              |       | $        | 6,609      |     | $          | 1,100 |   |

* *

*Intellectual property.*The Company has entered intoan assignment agreement with Florida Hooters LLC which grants the Company theright to use certain intellectual property in connection with the operations ofthe Hooters Casino Hotel. The intellectual property consists of (i) anexclusive license for the Hooters trademark and logo insignia in connectionwith gaming, casino or combined hotel, gaming and casino operations,(ii) a non-exclusive license to use the Hooters restaurant concept,(iii) an exclusive license to operate and promote restaurants, taverns,lounges and “Dan Marino’s Fine Food & Spirits” and “‘13’ Martini Bar” and(iv) a non-exclusive, royalty-free license to use the Pete & Shorty’smark at a restaurant, bar and lounge, in each case solely for purposes of aHooters Casino Hotel located at the Hôtel San Rémo property. These intangibleassets were initially valued at $1.1 million by management whencontributed, pending completion of a third party valuation. The intangibleassets were subsequently valued at $4.2 million by an independent third partyappraiser and are reflected as such in the accompanying consolidated balancesheet at December 31, 2005. Management believes the intellectual propertyacquired through the assignment agreements to be indefinite-lived intangibles.

 

59

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**5.  IntangibleAssets (continued)**

** **

The Hooters trademark and logo insignia are theexclusive property of HI Limited Partnership. Florida Hooters LLC originallyobtained the license for the trademark and logo insignia through an assignmentfrom Hooters Gaming Corporation, an affiliated entity under common ownershipwith Hooters Gaming LLC. Hooters Gaming Corporation is owned directly orindirectly by certain members of the Company or members of the Company’smanagement board. The underlying license agreement was executed****between HI Limited Partnership and Hooters GamingCorporation and granted to Hooters Gaming Corporation an exclusive license touse the licensed intellectual property in connection with gaming, casino orcombined hotel, gaming and casino operations within the State of Nevada. HootersGaming Corporation retained any and all rights and obligations in the licensedintellectual property pursuant to the license agreement for all locationswithin the State of Nevada other than the Hooters Casino Hotel. The Companybegan the use of the licensed intellectual property in connection with licensedgaming activities when the hotel casino was reopened as the new Hooters CasinoHotel on February 3, 2006.

 

The Hooters restaurant concept is the exclusiveproperty of Hooters of America, Inc., an unrelated party. Las VegasWings, Inc., an affiliated entity under common ownerships with LagsVentures, LLC, owns the exclusive right to use the Hooters restaurant conceptin the State of Nevada. Florida Hooters LLC originally obtained the right foruse at the Hooters Casino Hotel through an assignment from Hooters GamingCorporation, who in turn, was granted the right from Las Vegas Wings, Inc.

 

Pursuant to the terms of the assignment agreementwith Florida Hooters LLC related to the Hooters trademark and logo, and Hootersrestaurant concept and Lags Ventures, LLC related to the Dan Marino’s conceptrestaurants, the Company must pay fees and royalties to Hooters GamingCorporation, HI Limited Partnership, Las Vegas Wings, Inc. and Lags Ventures,Inc. Payments to Hooters Gaming****Corporation willequal three percent of all net profits directly earned from the gamingactivities at the Hooters Casino Hotel. HI Limited Partnership will be paid anannual fee equal to $500. As the Hooters Casino Hotel opening did not occur untilFebruary 2006, no amounts were expensed by the Company for these fees androyalties during the year ended December 31, 2005.

 

In addition, the Company will be required to pay HILimited Partnership a royalty in an amount equal to two percent of all netrevenues generated in connection with licensed activities which includes netrevenues generated in connection with the Hooters restaurant operation. LasVegas Wings, Inc will be paid a consent fee equal to four percent of grosssales from any Hooters branded restaurant, including the gross sales of anymerchandise with a Hooters logo, on or near the Hooters Casino Hotel. LagsVentures, Inc. will be paid a fee by the Company equal to six percent ofnet revenues generated by the Dan Marino’s Fine Food and Spirits and the “13”Martini Bar to be located in the Hooters Casino Hotel.

 

60

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**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

**5.  Intangible Assets(continued)**

 

Use of the Pete & Shorty’s mark partlyowned by certain members of the Company’s management board is royalty-free. Asthe Hooters Casino Hotel opening did not occur until February 2006, no amountswere expensed by the Company for these fees and royalties during the year endedDecember 31, 2005.

 

Hooters Gaming Corporation and Las VegasWings, Inc. have agreed to subordinate payment of their respective fees infavor of certain payments required under the Company’s operating agreement. Andpayment is subject to meeting certain financial covenants associated with theCompany’s debt.

 

*Slot customer list.*As part of the acquisitionof the real property and other assets of the Hôtel San Rémo (Note 2), theCompany acquired the slot customer list valued by a third-party appraiser at$260,000. It is being amortized over five years using the straight line method.

 

*Goodwill*  As part ofthe allocation of the purchase price of the Hôtel San Rémo (Note 2), theCompany recorded goodwill from the acquisition of Hôtel San Rémo representingthe excess of the purchase price over the fair market value of assets acquired.

 

**6.  Long-termDebt**

** **

**Notes Offering**

 

OnMarch 29, 2005, the Company issued $130.0 million aggregate principal amount of83⁄4% Senior Secured Notes due 2012, in a private placement (the “old notes”). OnAugust 5, 2005, the Company successfully exchanged all of the private placementnotes for new notes (“Notes”). The Notes have substantially identical terms asthe old notes, except that the new notes have been registered under theSecurities Act of 1933 and will be freely tradable. Interest payments on theNotes are due semi annually, on April 1 and October 1. The first payment wasmade on October 1, 2005. The Notes are secured by all of the Company’s and, tothe extent in existence, subsidiary guarantors’ 1)  existing and futureassets  (other than certain excludedexisting and future assets), 2) the Company’s equity interest in any guarantorsand 3) existing renovation disbursement and interest reserve accounts asdescribed below.

 

The Notes are redeemable at the option of the Company on or after April1, 2009. The indenture governing the Notes required the Company to establish arenovation disbursement account in the amount of $50.8 million and interestreserve account in the amount of $11.2 million. The indenture also containscertain provisions which restrict or limit the Company’s ability to, amongother things, incur more debt, pay dividends, redeem stock or make otherdistributions, enter into transactions with affiliates or transfer or sellassets. The Company used the proceeds from the old notes offering to retireexisting indebtedness and (together with cash from operations and proceeds fromequipment financing), renovate and construct the Hooters Casino Hotel andprovide for general working capital needs. Related to this retirement ofexisting indebtedness, the Company recognized a loss on extinguishment of debtin the amount of $2,246,526 during the year ended December 31, 2005.

 

61

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**6.  Long-termDebt (continued)**

** **

**SeniorSecured Credit Facility**

 

The Company entered into a $15.0 million senior secured credit facilityconcurrently with the offering of the old notes. The senior credit facility issecured by a four-year revolving credit facility of up to the lesser of $15.0million or three times trailing twelve month EBITDA through September 30, 2006and two times thereafter; provided that the multiple of EBITDA requirement willnot apply if outstanding borrowings are less than $7.5 million. EBITDA isdefined for any fiscal period as the Company’s consolidated net income (or loss),minus extraordinary gains and interest income, plus interest expense, incometaxes and depreciation and amortization for such period, and subject to otheradjustments as defined in the credit facility agreement. On January 30, 2006,the senior secured credit facility was amended to allow the Company, during theperiod of February 1, 2006 to June 30, 2006, to obtain advances in theaggregate principal amount of up to $15 million, without regard to the multipleof EBITDA requirement. The Company drew $100,000 against the senior securedcredit facility on January 30, 2006 to pay the bank fee related to thisamendment.

 

At the Company’s option, the interest rate will be either the lender’sprime rate plus 2.00% per annum or LIBOR plus 3.50% per annum. All theobligations under the senior secured credit facility are secured by firstpriority liens on and security interest in all of the Company’s and guarantor’sexisting and future properties and assets. The lien on the collateral thatsecures the Notes are contractually subordinated to the liens securing theprincipal amount of borrowings under the senior secured credit facility of upto $15.0 million (plus related interest, fees, indemnities, costs andexpenses). The senior secured credit facility required the Company to pay aclosing fee of $225,000, and unused commitment fees of 0.50% per annum on anyunused portion of the senior secured credit facility, and, if terminated priorto the third anniversary date, a prepayment premium of 1.00% of the maximum creditamount for each year or partial year remaining from the termination date to thethird anniversary date. The senior secured credit facility also containscustomary financial covenants and other events of default. The Company had noborrowings outstanding under the senior secured credit facility at December 31,2005.

 

**IntercreditorAgreement**

 

Concurrently with theclosing of the old notes offering and senior secured credit facility, theCompany entered into an intercreditor agreement, which defines the rights ofthe lenders under the senior secured credit facility in relation to the rightsof the trustee and the holders of the Notes with respect to****thecollateral securing the Notes. The intercreditor agreement, among other things,provides that the liens securing the Notes and any guarantees thereof arecontractually subordinated (other than the security

 

62

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**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

**6.  Long-termDebt (continued)**

 

interests in the renovation disbursement account, which will be senior,and interest reserve account, which will not secure the senior secured creditfacility) to the liens securing the principal amount of indebtedness of up to$15.0 million (plus related interest, fees, indemnities, costs and expenses)under the senior secured credit facility. The trustee’s ability to exerciserights and remedies in respect of the collateral are also subject to the termsof the intercreditor agreement.

 

**7.  MembershipInterests**

** **

The initial capital contributions and membershipinterests in the Company for Florida Hooters LLC and EW Common LLC wereestablished in exchange for the following:

 

Florida Hooters LLC contributed $5.0 million incash and the intellectual property described in Note 5 for a 66 2/3%membership interest in the Company. Further, all pre-development costs incurredby Florida Hooters LLC are credited to the Florida Hooters LLC capital account.

 

EWCommon LLC received a 33 1/3% membership interest with priority return fora $20.0 million deemed initial capital contribution as part of the Company’sacquisition of the real property and non-gaming assets of the Hôtel San Rémo.The 4% priority rate of return on the membership interest held by EW Common LLCwill not commence accruing until the renovation is complete and the HootersCasino Hotel is re-opened. In October 2005, the Company secured their gamingand liquor licenses and on November 1, 2005, assumed the operations of thehotel casino. Upon obtaining the necessary licenses to operate the hotelcasino, the Company acquired the gaming assets from Eastern & Westernconsisting primarily of slot machines and customer lists and credited thecapital account of EW Common LLC for an additional $5.0 million.

 

**8.  Profit-SharingPlan**

 

TheCompany has a deferred compensation plan established pursuant to Section 401(k)of the Internal Revenue Code for all regular full-time employees not covered bya collective bargaining agreement who have completed at least three months ofcontinuous service. The Company’s****contributions tothe plan are at the discretion of the Company’s management board, and cannotexceed the lesser of $1,500 or 6% of the participant’s compensation. There wereno such contributions made during 2005. Amounts expensed under the plan foradministrative expenses for the year ended December 31, 2005 and for the periodfrom inception (June 17, 2004) through December 31, 2004 totaled $2,556 and $0,respectively.

 

63

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### ** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

 

**9. Lease Agreements**

 

The Company, as lessor, entered into a casino leaseand hotel lease with Eastern & Western covering the real property andnon-gaming assets of the Hôtel San Rémo acquired by the Company. The leaseswere subsequently terminated on October 31, 2005 and the operations of thehotel and casino were assumed by the Company on November 1, 2005.

 

**Casino Lease**

 

Prior to its termination on October 31, 2005, thecasino lease covered those portions of the Hôtel San Rémo containing theshowroom, gaming and liquor servicing areas, the casino floor where gamingactivities occur, surveillance areas, count rooms, the cashier’s cage and otherareas ancillary to the casino footprint.

 

Minimum monthly base-rent payments of $125,000 weredue from August 3, 2004 until the termination of the lease on October 31, 2005.

 

Under the provisions of the casino lease,Eastern & Western was allowed to deposit $30,000 into a “CapitalReserve Account” each month for capital improvements to the casino such as thepurchase of gaming devices. The casino lease also provided forEastern & Western to fund $120,000 each month to a “Change in ControlReserve” and $55,000 to establish an “Expense Reserve” to be used for thepayment of legal, accounting, and professional fees and other general businessexpenses including licensing renewal costs. Eastern & Western was requiredto fund any excess cash flow remaining after payment of rent and funding of thereserves into a restricted cash account to be used to secure Eastern &Western’s guarantee of the Company’s existing borrowings. There were no excesscash flows required to be funded into any of these reserve accounts. To theextent that these reserves were not used, they were paid to Eastern &Western at the termination of the lease. On December 12, 2005, a payment of$1,127,628 was made to Eastern & Western by the Company for the balance ofthe reserves at October 31, 2005, and it was part of the purchase priceadjustments recorded by the Company as Goodwill. Rental income earned under thecasino lease totaled $1,250,000 and $612,903 for the year ended December 31,2005 and the period from inception (June 17, 2004) through December 31, 2004,respectively. There were no rent receivables under the casino lease at December31, 2005 or 2004.

 

**Hotel Lease**

 

The hotel lease between Eastern & Westernand the Company covers those portions of the Hôtel San Rémo containing allnon-casino areas, including the hotel. The hotel lease was terminated onOctober 31, 2005. Minimum lease payments due under the hotel lease consisted ofa minimum rent and a percentage rent. The minimum rent was $250,000 per month. Thepercentage rent was equal to 100% of all revenues received from the operationsof the hotel, less actual operational expenses (including

 

64

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**9. Lease Agreements(continued)**

** **

minimum rent) and workingcapital reserves which were determined and agreed upon monthly between theCompany and Eastern & Western. No working capital reserves were agreedto for the lease period from August 3, 2004 to December 31, 2004. Theminimum rent was paid on a monthly basis on the first of each month and thepercentage rent was paid in arrears on the first of each month. Percentagerental income earned for the period from inception (June 17, 2004) throughDecember 31, 2004 and the year ended December 31, 2005 was $311,672 and$1,689,324, respectively. The total rental income earned under the hotel leasewas $1,537,479 and $4,189,324 for the period from inception (June 17, 2004)through December 31, 2004 and the year ended December 31, 2005, respectively. Therewere no rent receivables under the hotel lease at December 31, 2005 or 2004.

 

**10.  Related Party Transactions**

 

In addition to the transactions related to theassignment of intellectual property to the Company by Florida Hooters LLC, LagsVentures, LLC and Pete & Shorty’s, Inc. described in Note 5 andthe casino and hotel lease arrangements with Eastern & Westerndescribed in Note 9, the Company has also entered into arrangements withHawkeye Construction and Millwork, Inc. and ProvidentAdvertising & Marketing, Inc., each of which is owned byindividuals who are members of the Company’s management board or beneficialowners of common membership interests in the Company.

 

Hawkeye Construction andMillwork, Inc. are managing the construction and renovation of the HootersCasino Hotel and receive as compensation for such services 2% of theconstruction and furniture, fixtures and equipment costs, not to exceed$600,000. Provident Advertising & Marketing, Inc. (“Provident”) hasbeen engaged by the Company to provide services related to the planning anddevelopment of an initial advertising and marketing plan and for the continueddevelopment and implementation of a strategic marketing plan for the operationof the Hooters Casino Hotel. The Company’s payments to Hawkeye Construction andMillwork, Inc. totaled $527,827 for the year ended December 31, 2005. Noamounts were paid to Hawkeye Construction and Millwork, Inc. during theperiod from inception (June 17, 2004) through December 31, 2004. Thefees paid to Provident during the year ended December 31, 2005 and the periodfrom inception (June 17, 2004) through December 31, 2004 totaled$305,365 and $19,500, respectively. The marketing fees paid to Provident areincluded in pre-opening expenses in the accompanying consolidated statement ofoperations. The fees paid to Provident also include purchases of uniforms andgift shop items for resale.

 

65

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** **

**155 East Tropicana, LLC(A Nevada Limited Liability Company)**

 

### **NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**

** **

**11.  Commitmentsand Contingencies**

** **

***Litigation***

*** ***

From time to time, the Company is a party to variousclaims arising in the normal course of business. Management believes, however,that there are no proceedings pending or threatened against the Company which,if determined adversely, would have a material adverse effect on the Company’sfinancial condition, results of operations or liquidity.

 

***ContractualCommitments***

*** ***

On February 25, 2005, the Company entered intoa $36.5 million guaranteed maximum price contract with The PENTA BuildingGroup, Inc. for the renovation, construction and upgrade of the Hôtel SanRémo. Upon receiving the necessary building permits, the renovation andconstruction of the Hôtel San Rémo commenced in April 2005. At December31, 2005, approximately $28.1 million of the $36.5 million had been incurred.

 

At December 31, 2005, remaining contractualcommitments for all contracts related to construction of the Hooters CasinoHotel totaled $44.4 million.

 

66

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### ** **

### **Report ofIndependent Registered Public Accounting Firm**

### ** **

**To S.I.Enterprises, Inc:**

 

Wehave audited the accompanying combined balance sheets of Hôtel San Rémo Casino and Resort, a divisionof S.I. Enterprises, Inc., a Nevada corporation (the “Division”) as ofOctober 31, 2005 and December 31, 2004, and the related combined statements ofoperations, division equity (deficit), and cash flows for the ten months endedOctober 31, 2005 and for the years ended December 31, 2004 and 2003. Thesefinancial statements are the responsibility of the Division’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Division’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Division’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

Inour opinion, the combined financial statements referred to above presentfairly, in all material respects, the combined financial position of Hôtel San Rémo Casino and Resort at October31, 2005 and December 31, 2004, and the results of its combined operations andits combined cash flows for the ten months ended October 31, 2005 and for theyears ended December 31, 2004 and 2003, in conformity with U.S. generallyaccepted accounting principles.

 
|   |   |   | /s/  Ernst & Young LLP |
|--------|--------|--------|----------------------------|

 

LasVegas, Nevada

February9, 2006

 

67

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** **

**Hôtel San RémoCasino and Resort**

**(Divisionof S.I. Enterprises, Inc.)**

 

### **COMBINED BALANCE SHEETS**

 
| ** **                                                                                                                                                                                          | ** ** | **October 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| **Assets**                                                                                                                                                                                          |       |                       |       |                        |       |
| Current assets:                                                                                                                                                                                     |       |                       |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                          |       | $                          | 2,903,020  |                        | $          | 4,470,919 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $137,507 in 2005 and  $146,845 in 2004, and including related party interest receivables of  $395,324 and $378,179 in 2005 and 2004 |       | 1,392,338                  |       | 1,161,510                   |       |
| Due from 155  East Tropicana, LLC                                                                                                                                                                   |       | 644,934                    |       | 1,760,434                   |       |
| Due from Nevada  Gaming Control Board                                                                                                                                                               |       | 116,893                    |       | —                      |       |
| Inventories                                                                                                                                                                                         |       | 200,208                    |       | 274,957                     |       |
| Prepaid expenses                                                                                                                                                                                    |       | 175,750                    |       | 681,698                     |       |
| Deferred tax  assets                                                                                                                                                                                |       | 776,614                    |       | 13,746                      |       |
| Total current  assets                                                                                                                                                                               |       | 6,209,757                  |       | 8,363,264                   |       |
| Property and  equipment:                                                                                                                                                                            |       |                       |       |                        |       |
| Furniture,  fixtures and equipment                                                                                                                                                                  |       | 7,177,825                  |       | 7,140,345                   |       |
| Construction in  progress                                                                                                                                                                           |       | —                     |       | 15,699                      |       |
|                                                                                                                                                                                                |       | 7,177,825                  |       | 7,156,044                   |       |
| Less accumulated  depreciation                                                                                                                                                                      |       | (6,040,293                 | )          | (5,705,503                  | )          |
| Net property and  equipment                                                                                                                                                                         |       | 1,137,532                  |       | 1,450,541                   |       |
| Deferred tax  assets                                                                                                                                                                                |       | 825,550                    |       | 2,401,372                   |       |
| Other assets                                                                                                                                                                                        |       | 42,088                     |       | 81,547                      |       |
| Total assets                                                                                                                                                                                        |       | $                          | 8,214,927  |                        | $          | 12,296,724 |   |
|                                                                                                                                                                                                |       |                       |       |                        |       |
| **Liabilities  and Division Equity**                                                                                                                                                                |       |                       |       |                        |       |
| Current  liabilities:                                                                                                                                                                               |       |                       |       |                        |       |
| Accounts payable                                                                                                                                                                                    |       | $                          | 1,720,996  |                        | $          | 1,610,160 |   |
| Accrued expenses                                                                                                                                                                                    |       | 1,416,765                  |       | 1,827,381                   |       |
| Income taxes  payable to S.I. Enterprises, Inc.                                                                                                                                                     |       | 1,216,743                  |       | 1,150,763                   |       |
| Current portion  of long-term debt                                                                                                                                                                  |       | —                     |       | 235,905                     |       |
| Total current  liabilities                                                                                                                                                                          |       | 4,354,504                  |       | 4,824,209                   |       |
|                                                                                                                                                                                                |       |                       |       |                        |       |
| Commitments and  contingencies                                                                                                                                                                      |       |                       |       |                        |       |
|                                                                                                                                                                                                |       |                       |       |                        |       |
| Division equity                                                                                                                                                                                     |       | 3,860,423                  |       | 7,472,515                   |       |
| Total  liabilities and division equity                                                                                                                                                              |       | $                          | 8,214,927  |                        | $          | 12,296,724 |   |

* *

*Theaccompanying notes are an integral part of these combined financial**statements.*

 

68

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** **

**Hôtel San RémoCasino and Resort**

**(Divisionof S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF OPERATIONS**

 
| ** **                            | ** ** | **Ten Months Ended** | ** ** | **Year Ended**         | ** ** | **Year Ended**         | ** ** |
|---------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **October 31,  2005**     | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
| ** **                            | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Operating  revenues:                  |       |                           |       |                        |       |                        |       |
| Casino                                |       | $                              | 9,408,533  |                        | $          | 12,724,697                  |       | $ | 11,690,967 |   |
| Food and  beverage                    |       | 5,556,404                      |       | 7,968,741                   |       | 7,782,119                   |       |
| Hotel and other                       |       | 12,217,344                     |       | 14,826,303                  |       | 12,531,174                  |       |
|                                  |       | 27,182,281                     |       | 35,519,741                  |       | 32,004,260                  |       |
| Less promotional  allowances          |       | (1,769,932                     | )          | (2,413,791                  | )          | (2,179,197                  | )          |
| Net operating  revenues               |       | 25,412,349                     |       | 33,105,950                  |       | 29,825,063                  |       |
| Operating  expenses:                  |       |                           |       |                        |       |                        |       |
| Casino                                |       | 5,735,908                      |       | 6,796,058                   |       | 6,828,086                   |       |
| Food and  beverage                    |       | 4,976,696                      |       | 6,360,381                   |       | 6,098,550                   |       |
| Hotel and other                       |       | 3,628,525                      |       | 4,376,884                   |       | 4,293,258                   |       |
| General and  administrative           |       | 6,678,543                      |       | 7,858,528                   |       | 6,603,672                   |       |
| Depreciation  expense                 |       | 334,790                        |       | 1,419,038                   |       | 2,134,247                   |       |
| Related party  lease expense          |       | 5,439,324                      |       | 2,150,382                   |       | —                      |       |
| Restructuring  costs                  |       | —                         |       | 514,449                     |       | —                      |       |
| Total operating  expenses             |       | 26,793,786                     |       | 29,475,720                  |       | 25,957,813                  |       |
| Operating (loss)  income              |       | (1,381,437                     | )          | 3,630,230                   |       | 3,867,250                   |       |
| Other income  (expense):              |       |                           |       |                        |       |                        |       |
| Related party  interest income        |       | 346,262                        |       | 443,692                     |       | 578,592                     |       |
| Interest expense                      |       | (7,398                         | )          | (1,944,451                  | )          | (1,184,814                  | )          |
| Foreign currency  translation         |       | —                         |       | 660,184                     |       | (2,264,256                  | )          |
| Loss on sale of  asset                |       | —                         |       | (1,842                      | )          | —                      |       |
| Other income  (expense), net          |       | 338,864                        |       | (842,417                    | )          | (2,870,478                  | )          |
| (Loss) income  before income taxes    |       | (1,042,573                     | )          | 2,787,813                   |       | 996,772                     |       |
| (Benefit)  provision for income taxes |       | (396,633                       | )          | 867,303                     |       | 302,406                     |       |
| Net (loss)  income                    |       | $                              | (645,940   | )                           | $          | 1,920,510                   |       | $ | 694,366 |   |

* *

*Theaccompanying notes are an integral part of these combined financial**statements.*

 

69

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** **

**Hôtel San RémoCasino and Resort**

**(Divisionof S.I. Enterprises, Inc.)**

 

### **COMBINED STATEMENTS OF DIVISION EQUITY (DEFICIT)**

 
| ** **                                                        | ** ** | **Ten Months Ended** | ** ** | **Year Ended**         | ** ** | **Year Ended**         | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                        | ** ** | **October 31,  2005**     | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
| ** **                                                        | ** ** | ** **                     | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Balance,  beginning of period                                     |       | $                              | 7,472,515  |                        | $          | (15,791,014                 | )          | $ | (11,914,137 | ) |
| Advances (to)  from affiliates, net                               |       | (2,966,152                     | )          | 3,553,315                   |       | (4,571,243                  | )          |
| Transfer of real  property and non-gaming assets to EW Common LLC |       | —                         |       | (25,956,004                 | )          | —                      |       |
| Transfer of  long-term debt to EW Common LLC                      |       | —                         |       | 43,745,708                  |       | —                      |       |
| Net (loss)  income                                                |       | (645,940                       | )          | 1,920,510                   |       | 694,366                     |       |
| Balance, end of  period                                           |       | $                              | 3,860,423  |                        | $          | 7,472,515                   |       | $ | (15,791,014 | ) |

 

*The accompanying notes are an integral part of these combined financialstatements.*

 

70

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** **

**Hôtel San RémoCasino and Resort**

**(Divisionof S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                                | ** ** | **Ten Months Ended** | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                                                | ** ** | **October 31,**           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                | ** ** | **2005**                       | ** ** | **2004**              | ** ** | **2003**              | ** ** |
| ** **                                                                                | ** ** | ** **                     | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Cash  Flow From Operating Activities**                                                  |       |                           |       |                  |       |                  |       |
| Net (loss)  income                                                                        |       | $                              | (645,940   | )                     | $          | 1,920,510             |       | $ | 694,366 |   |
| Adjustments to  reconcile net (loss) income to net cash provided by operating activities: |       |                           |       |                  |       |                  |       |
| Depreciation                                                                              |       | 334,790                        |       | 1,419,038             |       | 2,134,247             |       |
| Deferred income  taxes                                                                    |       | 812,954                        |       | (1,607,722            | )          | 2,264,256             |       |
| Foreign currency  translation                                                             |       | —                         |       | (660,184              | )          | (483,422              | )          |
| Change in  operating assets and liabilities:                                              |       |                           |       |                  |       |                  |       |
| Accounts  receivable                                                                      |       | (221,490                       | )          | (221,547              | )          | (13,588               | )          |
| Provision for  doubtful accounts                                                          |       | (9,338                         | )          | (15,413               | )          | 3,857                 |       |
| Due from Nevada  Gaming Control Board                                                     |       | (116,893                       | )          | —                |       | —                |       |
| Inventories                                                                               |       | 74,749                         |       | (17,682               | )          | 7,723                 |       |
| Prepaid expenses                                                                          |       | 505,948                        |       | (100,044              | )          | (27,534               | )          |
| Accounts payable                                                                          |       | 110,836                        |       | 387,458               |       | 13,548                |       |
| Accrued expenses                                                                          |       | (410,616                       | )          | 765,543               |       | (305,844              | )          |
| Income taxes  payable to S.I. Enterprises, Inc.                                           |       | 65,980                         |       | (408,830              | )          | 785,828               |       |
| Net cash  provided by operating activities                                                |       | 500,980                        |       | 1,461,127             |       | 5,073,437             |       |
|                                                                                      |       |                           |       |                  |       |                  |       |
| **Cash  Flow From Investing Activities**                                                  |       |                           |       |                  |       |                  |       |
| Capital  expenditures                                                                     |       | (21,781                        | )          | (928,010              | )          | (964,905              | )          |
| Net change in  other assets                                                               |       | 39,459                         |       | 5,541                 |       | 10,000                |       |
| Net cash provided  by (used in) investing activities                                      |       | 17,678                         |       | (922,469              | )          | (954,905              | )          |
|                                                                                      |       |                           |       |                  |       |                  |       |
| **Cash  Flow From Financing Activities**                                                  |       |                           |       |                  |       |                  |       |
| Net change in  due from 155 East Tropicana, LLC                                           |       | 1,115,500                      |       | (1,760,434            | )          | —                |       |
| Principal  payments on long-term debt                                                     |       | (235,905                       | )          | (779,479              | )          | (360,000              | )          |
| Advances (to)  from affiliates, net                                                       |       | (2,966,152                     | )          | 3,768,945             |       | (4,571,243            | )          |
| Net cash  provided by (used in) financing activities                                      |       | (2,086,557                     | )          | 1,229,032             |       | (4,931,243            | )          |
|                                                                                      |       |                           |       |                  |       |                  |       |
| (Decrease)  increase in cash and cash equivalents                                         |       | (1,567,899                     | )          | 1,767,690             |       | (812,711              | )          |
| Cash and cash  equivalents, beginning of period                                           |       | 4,470,919                      |       | 2,703,229             |       | 3,515,940             |       |
| Cash and cash  equivalents, end of period                                                 |       | $                              | 2,903,020  |                  | $          | 4,470,919             |       | $ | 2,703,229 |   |

 

*Theaccompanying notes are an integral part of these combined financial**statements.*

 

71

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** **

**Hôtel San RémoCasino and Resort**

**(Divisionof S.I. Enterprises, Inc.)**

 

### **COMBINEDSTATEMENTS OF CASH FLOWS (CONTINUED)**

 
| ** **                                                        | ** ** | **Ten Months Ended** | ** ** | **Year Ended**   | ** ** | **Year Ended**   | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **October 31,**           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                        | ** ** | **2005**                       | ** ** | **2004**              | ** ** | **2003**              | ** ** |
| ** **                                                        | ** ** | ** **                     | ** ** | ** **            | ** ** | ** **            | ** ** |
| **Supplemental  disclosure of cash flow information:**            |       |                           |       |                  |       |                  |       |
| Cash paid during  period for interest                             |       | $                              | 7,398      |                  | $          | 1,474,301             |       | $ | 1,180,224 |   |
|                                                              |       |                           |       |                  |       |                  |       |
| **Non-cash  investing and financing activities:**                 |       |                           |       |                  |       |                  |       |
| Assets acquired  under capital leases                             |       | $                              | —     |                  | $          | 191,709               |       | $ | — |   |
|                                                              |       |                           |       |                  |       |                  |       |
| Transfer of real  property and non-gaming assets to EW Common LLC |       | $                              | —     |                  | $          | (25,956,004           | )          | $ | — |   |
|                                                              |       |                           |       |                  |       |                  |       |
| Transfer of  long-term debt to EW Common LLC                      |       | $                              | —     |                  | $          | 43,745,708            |       | $ | — |   |

 

*The accompanying notes are an integral part ofthese combined financial**statements.*

 

72

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** **

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS**

### ** **

**October 31, 2005**

** **

**1.Organization and Basis of Presentation**

** **

The accompanying combined financial statements present the operationsof Hôtel San Rémo Casino and Resort (“Hôtel San Rémo”), a division of S.I.Enterprises, Inc. (the “Parent Company”), a Nevada Corporation, which islocated in Las Vegas, Nevada. Hôtel San Rémo commenced gaming operations onFebruary 16, 1990. The accompanying combined financial statementsrepresent the assets, liabilities and operations of the hotel and gamingfacilities and include certain accounts of Eastern & Western HotelCorporation (“Eastern & Western”) and I&P Corporation, Colorado (“I&P”),both Nevada corporations. The accompanying financial statements have been prepared as of the lastday of operations, October 31, 2005, of Hôtel San Rémo by Eastern & Westernas 155 East Tropicana, LLC assumed the operations of the hotel and casino as ofNovember 1, 2005 upon which it secured its gaming and liquor licenses.Through October 31, 2005, Eastern & Western held the gaming license inNevada and owned all gaming assets used by Hôtel San Rémo. I&P owned thereal property and non-gaming assets of Hôtel San Rémo until August 3,2004, at which time they were acquired by 155 East Tropicana, LLC (see Note 2)and then leased back to Hôtel San Rémo pursuant to the casino lease and hotellease arrangements (see Note 7). Members of the Izumi family are 100% owners ofS.I. Enterprises, Inc., which owns 100% of Eastern & Western and owns 100%of I&P. The principal business of Eastern & Western prior to the mergerof I&P into Eastern & Western, was the owner and operator of the hotel.

 

On July 28, 2004, I&P was merged with and intoEastern & Western, with Eastern & Western assuming all assetsand liabilities of I&P including the real property and non-gaming assets ofHôtel San Rémo.

 

All significant intercompany accounts and transactions have beeneliminated in the combined financial statements.

 

**2.Acquisition by 155 East Tropicana, LLC**

** **

In August 2004, 155 East Tropicana, LLC (“155”) agreed to theacquisition of the real property and other assets of Hôtel San Rémo forapproximately $72.5 million including transaction costs and expenses. 155is a joint venture between Florida Hooters LLC and EW Common LLC. EW Common LLCwas formed to hold Eastern & Western’s membership interest in 155. EWCommon LLC is owned 90% by Eastern & Western and 10% by Michael J.Hessling, the executive vice president and chief operating officer of Hôtel SanRémo. Initially, 155 acquired $67.5 million of the real property and non-gamingassets and agreed that the remaining $5.0 million in gaming assets would betransferred to 155 upon obtaining the gaming and liquor licenses necessary totake over operations of the hotel and casino. In October 2005, 155 secured theirgaming and liquor licenses and on November 1, 2005, assumed the operations ofthe hotel and casino. On November 1, 2005, the remaining Hôtel San Rémo gamingassets

 

73

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** **

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

**2. Acquisitionby 155 East Tropicana, LLC (continued)**

 

werealso transferred to 155 in exchange for an additional $5.0 million interest in155 with a priority return. The casino and hotel leases were terminated onOctober 31, 2005. Immediately prior to the acquisition in 2004, the realproperty and non-gaming assets of Hôtel San Rémo with a net book value of$25,956,004 and long-term debt of $43,745,708 were transferred to EWCommon LLC. Because EW Common LLC and Hôtel San Rémo are entitiesunder common control, these transfers were reflected as division equitytransactions.

 

The acquisition was funded by 155 through a term loan totaling$48.5 million which was used to extinguish the Hôtel San Rémo’s existingindebtedness of $43.7 million, a commitment to pay the former owner ofHôtel San Rémo $1.3 million and the issuance to EW Common LLC of a 33(1)¤3% membershipinterest with priority return valued at $20.0 million.

 

On March 29, 2005, 155successfully completed the issuance of $130 million in principal amount 83⁄4%,Senior Secured Notes due 2012 (the “old notes”). On August 5, 2005, 155successfully exchanged all of the old notes for the new notes (the “Notes”). Proceedsfrom the Notes offering are being used principally to renovate the Hôtel SanRémo into the Hooters Casino Hotel.

 

**3. Summaryof Significant Accounting Policies**

 

*Use of Estimates.*The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affectthe reported amount of assets and liabilities and disclosure of contingentassets and liabilities at the date of the combined financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

 

*Restructuring Costs.*Professional fees includingthose related to legal, accounting and consulting services incurred by HôtelSan Rémo in evaluating various financial strategies to restructure its existingindebtedness (see Note 5) have been classified as restructuring costs in theaccompanying combined statements of operations.

 

*Cash and Cash Equivalents.*Cash and cash equivalentsinclude all cash balances and highly liquid investments with purchasedmaturities of three months or less at the date of purchase.

 

*Allowances for Doubtful Accounts.*The Division reserves anestimated amount for receivables that may not be collected. Historicalcollections rates and customer relationships are considered in determiningspecific reserves. Bad debt expense was $45,000, $48,000 and $34,000 for theten months ended October 31, 2005 and for the years December 31, 2004 and 2003,respectively.

 

74

----

 

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

### ** **

**3.Summary of Significant Accounting Policies (continued)**

 

*Inventories.*Inventories are stated at the lower of cost(using a first-in, first-out method) or market value.

 

*Propertyand Equipment.*Property and equipment are recorded at cost. Depreciationis calculated using the straight-line method over the following estimateduseful lives:

 

| Buildings  and improvements         |   | 15  to 31.5 years |
|-------------------------------------|--------|-------------------|
| Furniture,  fixtures, and equipment |   | 3  to 7 years     |

 

Normalrepairs and maintenance are charged to expense when incurred. Expenditures thatextend the useful lives of assets are capitalized.

 

*Long-LivedAssets.*In accordance with the provisions of Statement ofFinancial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” Hôtel San Rémo evaluates the potentialimpairment of long-lived assets when events or changes in circumstancesindicate that the carrying amount of a long-lived asset may not be recoverable.If it is determined that the carrying value of long-lived assets may not berecoverable based upon the relevant facts and circumstances, Hôtel San Rémoestimates the future undiscounted cash flows expected to result from the use ofthe asset and its eventual disposition. If the sum of the expected undiscountedfuture cash flows is less than the carrying value of the asset, Hôtel San Rémowill recognize an impairment loss for the difference between the carrying valueof the asset and its fair value.

 

*IncomeTaxes.*Hôtel San Rémo****accounts forincome taxes under SFAS No. 109, “*Accounting for IncomeTaxes*” (“SFAS No. 109”), whereby deferred tax assets and liabilitiesare recognized for the future tax consequences attributable to differencesbetween the financial statements carrying amounts of existing assets andliabilities and their respective tax bases. Deferred tax assets and liabilitiesare measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled. Under SFAS No. 109, the effect on deferred tax assets and liabilitiesof a change in tax rates is recognized in income in the period that includedthe enactment date.

 

*Jackpotsand Prizes.*Hôtel San Rémo has progressive slot machines. Ascoins are played, the amount available to win increases and will be paid outwhen the jackpot is awarded. In accordance with industry practice, Hôtel SanRémo records the liability and expense related to such progressives asincurred.

 

75

----

 

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**3.Summary of Significant Accounting Policies (continued)**

 

*CasinoRevenues and Promotional Allowances.*In accordance with industrypractice, Hôtel San Rémo recognizes as casino revenue the net win from gamingactivities, which is the difference between gaming wins and losses. The retailvalue of rooms, food and beverage furnished to customers without charge isincluded in gross revenues and then deducted as promotional allowances.

 

Theestimated departmental costs of providing such promotional allowances areincluded in casino operating expenses and consist of the following:

 
| ** **         | ** ** | **Ten months ended  October 31,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** | **Year ended  December 31,  2003** | ** ** |
|--------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| Food and  beverage |       | $                                                      | 558,702    |                                         | $          | 531,609                                      |       | $ | 584,861 |   |
| Hotel and other    |       | 75,641                                                 |       | 110,090                                      |       | 132,765                                      |       |
|               |       | $                                                      | 634,343    |                                         | $          | 641,699                                      |       | $ | 717,626 |   |

 

*PlayerClub Points.*Hôtel San Rémo’s Money Club slot club program allowscustomers to earn certain complimentary products and/or cash, based on thevolume of the customers’ gaming activity. Hôtel San Rémo has recorded a liabilityfor the estimated cost of the products and/or cash earned by customers. HôtelSan Rémo’s slot club program allows customers to redeem points earned fromtheir gaming activity for complimentary food, beverage, rooms, entertainmentand merchandise. At the time redeemed, the retail values of complimentariesunder the program are recorded as revenue with a corresponding offsettingamount included in promotional allowances. The costs associated withcomplimentary food, beverage, rooms, entertainment and merchandise redeemedunder the program is recorded in casino operating expenses. In February 2001,the Emerging Issues Task Force (“EITF”) of the Financial Accounting StandardsBoard (“FASB”) reached a consensus in EITF Issue No. 00-22, “*Accounting for ‘Points’ and Certain Other Time-Based or Volume-BasedSales Incentive Offers, and Offers for Free Products to Be Delivered in theFuture*.”  EITF Issue No. 00-22requires that the redemption of points for cash be recognized as a reduction ofrevenue. In accordance with EITF Issue No. 00-22, Hôtel San Rémo has recordedthe cost of points earned and redeemed for complimentary services/cash rebatesas promotional allowances. Such amounts totaled $89,222 $146,468 and $167,457for the ten months ended October 31, 2005 and for the years ended December 31,2004 and 2003, respectively.

 

*Advertising.*Prepaid advertising costs are expensed thefirst time the advertising takes place. Prepaid advertising included in prepaidexpenses was $20,270 and $55,146 at October 31, 2005 and December 31, 2004,respectively. Advertising costs included in general and administrative expenseswere

 

76

----

 

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**3. Summary of SignificantAccounting Policies (continued)**

 

$473,834,$625,079 and $590,214 for the ten months ended October 31, 2005 and for theyears ended December 31, 2004 and 2003, respectively.

 

*ForeignCurrency Translation.*Until its extinguishment in August 2004,Hôtel San Rémo had long-term debt that was denominated in Japanese Yen. Inaccordance with SFAS No. 52, “*Foreign CurrencyTranslation*,” Hôtel San Rémo has recognized as income or expenses inthe accompanying combined statements of operations the translation gains orlosses that arose from changes in the exchange rates between the Japanese Yenand Hôtel San Rémo’s functional currency, the U.S. Dollar.

 

*FairValue of Financial Instruments.*The carrying value of HôtelSan Rémo’s cash and cash equivalents, receivables, accounts payable, accruedexpenses and debt approximates fair value primarily because of the shortmaturities of these instruments.

 

**4. Duefrom Affiliates**

 

AtOctober 31, 2005 and December 31, 2004, Hôtel San Rémo had unsecured demandnotes receivable from various related parties in the aggregate amount of$11,449,000 and $10,804,000, respectively. These notes bear interest atvariable rates, ranging from 3.4% to 5.0% at October 31, 2005. Hôtel San Rémohas recorded interest income related to these notes of $346,262, $443,692 and$578,592 for the ten months ended October 31, 2005 and for the years endedDecember 31, 2004 and 2003, respectively. The notes receivable at October 31,2005 and December 31, 2004 are included in Hôtel San Rémo’s division equity.

 

Includedin accounts receivable at October 31, 2005 and December 31, 2004 are relatedparty interest receivables and other receivables of $395,324 and $378,179,respectively.

 

Inaddition, at October 31, 2005 and December 31, 2004, Hôtel San Rémo had areceivable in the amount of $644,934 and $1,760,434, respectively, from 155East Tropicana, LLC. The receivable balance at December 31, 2004 includes thebalance of $1,254,292 due to Mr. Izumi related to the acquisition of the HôtelSan Rémo’s real property and non-gaming assets by 155 and other miscellaneousreceivables. There were no amounts due to Mr. Izumi included in the receivablebalance at October 31, 2005.

 

77

----

 

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**5. Long-TermDebt**

 

Long-termdebt consists of the following:

 
| ** **                                                                                                                       | ** ** | **October 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| Other notes  payable, with interest rates ranging from 6.75% to 8.25% and maturity dates  ranging from September to October 2005 |       | $                          | —     |                        | $          | 235,905 |   |
| Total debt                                                                                                                       |       | —                     |       | 235,905                     |       |
| Less current  portion of long-term debt                                                                                          |       | —                     |       | (235,905                    | )          |
| Total long-term  debt                                                                                                            |       | $                          | —     |                        | $          | — |   |

 

**6. Profit-SharingPlan**

 

HôtelSan Rémo has a deferred compensation plan established pursuant to Section401(k) of the Internal Revenue Code for all regular full-time employees notcovered by a collective bargaining agreement who have completed at least threemonths of continuous service. Hôtel San Rémo’s contributions to the plan are atthe discretion of S.I. Enterprises Inc.’s Board of Directors and cannot exceed$1,500 or 6% of the participant’s compensation. There were no contributionsmade during 2005, 2004 and 2003. Amounts expensed under the plan foradministrative expenses for the ten months ended October 31, 2005 and for theyears ended December 31, 2004 and 2003 totaled $329, $1,700, and $11,759,respectively.

 

**7.Lease Agreements**

** **

Inconnection with the acquisition of Hôtel San Rémo’s real property andnon-gaming assets by 155, Eastern & Western, as lessee, and 155 enteredinto lease agreements to lease back the casino and hotel property previouslyowned by Hôtel San Rémo. Upon the receipt of gaming and liquor licensing by155, these leases were terminated on October 31, 2005 and the operations of thehotel and casino were assumed by 155. The terms of these lease agreements aredescribed below.

 

*CasinoLease.*The casino lease between Eastern & Western and 155 covered thoseportions of the Hôtel San Rémo containing the showroom, gaming and liquorservicing areas, the casino floor where gaming activities occur, surveillanceareas, count rooms, cashier cages and other areas ancillary to the casinofootprint.

 

78

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**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**7.Lease Agreements (continued)**

 

Monthlybase rent payments of $125,000 were due from August 3, 2004 until terminationat October 31, 2005. Upon certain defined events and to the extent that HôtelSan Rémo had available cash flow from casino operations, Eastern & Westernwas to set aside reserves of $120,000 and $55,000 each month to cover change incontrol payments and licensing expenses, respectively. To the extent that thesereserves were not used, they were paid to Eastern & Western at thetermination of the lease. On December 21, 2005, a payment of $1,127,628 wasmade to Eastern & Western by 155 for the balance of the reserves existingat October 31, 2005.

 

***HotelLease.***Thehotel lease between Eastern & Western and 155 covered those portions of theHôtel San Rémo containing all non-casino areas including the hotel.

** **

Minimumlease payments due under the hotel lease consist of a minimum rent and apercentage rent. The minimum rent was $250,000 per month. The percentage rentwas equal to 100% of all revenues received from the operation of the hotel,less actual operational expenses (including minimum rent) and working capitalreserves which were determined and agreed upon monthly by 155 and Eastern &Western. No capital reserves were agreed to for the period from August 3, 2004through October 31, 2005. While the minimum rent was paid on a monthly basis,the percentage rent was paid in arrears to 155 on the first day of eachcalendar quarter. Rent for any partial month was prorated based on a thirty-daymonth. Percentage rental expense incurred for the ten months ended October 31,2005 and for the year ended December 31, 2004 totaled $1,689,324 and $311,672,respectively.

 

Totalrental expense under the casino and hotel leases was $5,439,324 and $2,150,382during the ten months ended October 31, 2005 and the year ended December 31,2004, respectively.

 

**8. IncomeTaxes**

 

HôtelSan Rémo is a division included in the consolidated federal income tax returnof its Parent Company. Accordingly, the current federal tax liability orbenefit resulting from the taxable income or loss generated by Hôtel San Rémois recognized by the Parent Company in its consolidated federal income taxreturn.

 

79

----

 

**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**8. Income Taxes (continued)**

 

Thecomponents of the Hôtel San Rémo’s income tax provision (benefit) fromcontinuing operations for the ten months ended October 31, 2005 and for theyears ended December 31, 2004 and 2003 are as follows (amounts in thousands):

 
| ** **                      | ** ** | **Ten months ended  October 31,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** | **Year ended  December 31,  2003** | ** ** |
|---------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                      | ** ** | **(in thousands)**                                | ** ** |
| Current tax  expense (benefit)  |       | $                                                      | 66         |                                         | $          | (409                                         | )          | $ | 786 |   |
| Deferred tax  expense (benefit) |       | (463                                                   | )          | 1,276                                        |       | (484                                         | )          |
| Total                           |       | $                                                      | (397       | )                                            | $          | 867                                          |       | $ | 302 |   |

 

A reconciliation of HôtelSan Rémo’s income tax provision (benefit) as compared to the tax provisioncalculated by applying the federal statutory rate (35%) to (loss) income beforeincome taxes for the ten months ended October 31, 2005 and for the years endedDecember 31, 2004 and 2003, is as follows (amounts in thousands):

 
| ** **                                                   | ** ** | **Ten months ended  October 31,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** | **Year ended  December 31,  2003** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                   | ** ** | **(in thousands)**                                | ** ** |
| Computed income  tax expense at statutory rate               |       | $                                                      | (365       | )                                            | $          | 976                                          |       | $ | 349 |   |
| General business  credits net of disallowed employment taxes |       | (32                                                    | )          | (110                                         | )          | (48                                          | )          |
| Other                                                        |       | —                                                 |       | 1                                            |       | 1                                            |       |
| Total                                                        |       | $                                                      | (397       | )                                            | $          | 867                                          |       | $ | 302 |   |

 

80

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**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**8. Income Taxes (continued)**

 

The income tax effects oftemporary differences between financial and income tax reporting that give riseto deferred tax assets and liabilities at October 31, 2005 and December 31,2004 are as follows:

 
| ** **                            | ** ** | **October 31,  2005 ** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **(in thousands)**          | ** ** |
| **Deferred  tax assets**              |       |                             |       |                        |       |
| Accrued expenses                      |       | $                                | 524        |                        | $          | 265 |   |
| Bad debt reserve                      |       | 48                               |       | 51                          |       |
| Fixed assets,  primarily depreciation |       | —                           |       | 1,265                       |       |
| Intangibles                           |       | 346                              |       | 204                         |       |
| Capitalized  interest                 |       | 13                               |       | 13                          |       |
| AMT and general  business credits     |       | 694                              |       | 617                         |       |
| Total deferred  tax assets            |       | 1,625                            |       | 2,415                       |       |
|                                  |       |                             |       |                        |       |
| **Deferred  tax liabilities**         |       |                             |       |                        |       |
| Fixed assets,  primarily depreciation |       | (23                              | )          | —                      |       |
| Total deferred  tax liabilities       |       | (23                              | )          | —                      |       |
|                                  |       |                             |       |                        |       |
| Net deferred tax  asset               |       | $                                | 1,602      |                        | $          | 2,415 |   |

 

AtOctober 31, 2005, Hôtel San Rémo has $476,831 of alternative minimum tax (“AMT”)credits and $217,109 of general business credits available to offset futurefederal tax. The AMT credit does not have an expiration date. The generalbusiness credits will start to expire in 2024.

 

Thecurrent payable for income taxes at October 31, 2005 and December 31, 2004 isrecorded in income taxes payable to S.I. Enterprises, Inc. in the accompanyingcombined balance sheets.

 

On February 28, 2005, S.I.Enterprises, Inc. converted from a Nevada corporation to a Nevada limitedliability company. Effective on the date of conversion, S.I. Enterprises, LLCelected to retain its “C” corporation status for federal income tax purposes.

 

81

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**Hôtel San RémoCasino and Resort**

**(Division of S.I. Enterprises, Inc.)**

 

### **NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)**

 

**9. Commitmentsand Contingencies**

 

*Non-Compete.*Under the terms of the Casino Lease and the Hotel Lease, Eastern &Western has agreed that Hôtel San Rémo will not operate a similar casino orhotel business at any other location in Clark County, Nevada, including anylocation within a hotel and/or casino property.

 

*Litigation.*Hôtel San Rémo is party to various litigation arising in the normalcourse of business. Management is of the opinion that the ultimate resolutionof these matters will not have a material adverse effect on the financial position,cash flows, or the results of operations of Hôtel San Rémo.

 

**10. SubsequentEvents**

 

OnDecember 12, 2005, Hôtel San Rémo received a payment of $2,158,131 (inclusiveof the payment of $1,127,628 discussed in Note 7) from 155 in additionalconsideration associated with the sale of the Hôtel San Rémo pursuant to theAmended and Restated Joint Venture Agreement and the Amended and RestatedCasino Lease Agreement with 155.

 

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**ITEM 9.****                            CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.**

 

Not applicable.

 

## **ITEM 9A.       CONTROLS AND PROCEDURES.**

## ** **

### **Evaluation of Disclosure Controls**

### ** **

We evaluated the effectiveness of our disclosure controls andprocedures as of the end of the 2005 fiscal year. This evaluation was done withthe participation of our management, including our Chief Executive Officer andChief Financial Officer.

 

Disclosure controls and procedures are controls and other proceduresthat are designed to ensure that information required to be disclosed by us inthe reports that we file or submit under the Securities Exchange Act of 1934are recorded, processed, summarized and reported within the time periodsspecified in the Commission’s rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by us in the reports that we file underthe Securities Exchange Act of 1934 is accumulated and communicated to ourmanager, as appropriate to allow timely decisions regarding requireddisclosure.

 

### **Limitations on the Effectiveness of Controls**

### ** **

Our management does not expect that our disclosure controls andprocedures or our internal controls over financial reporting will prevent allerror and all fraud. A control system, no matter how well conceived andoperated, can provide only reasonable, but not absolute, assurance that theobjectives of a control system are met. Further, any control system reflectslimitations on resources, and the benefits of a control system must beconsidered relative to its costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within us have been detected.These inherent limitations include the realities that judgments indecision-making can be faulty and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people, or by managementoverride of a control. The design of a control system is also based uponcertain assumptions about the likelihood of future events, there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions; over time, controls may become inadequate becauseof changes in conditions, or the degree of compliance with the policies orprocedures may deteriorate. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and may not bedetected.

 

### **Conclusions**

### ** **

Based on this evaluation, the our Chief Executive Officer and ChiefFinancial Officer have evaluated our disclosure controls and procedures (asdefined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d- 15(e))as of December 31, 2005, and have concluded that these are effective totimely alert them to material information relating to us required to beincluded in the reports that we file or submit under the Securities ExchangeAct of 1934.

 

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### **Changes in Internal Controls**

### ** **

There were no changes in our internal controls over financial reportingthat occurred during our last fiscal quarter, *i.e.*,the quarter ended December 31, 2005, that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

## **ITEM 9B.       OTHER INFORMATION.**

## ** **

Not applicable.

 

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# **PARTII**

# ** **

## **ITEM 10.**                      DIRECTORS ANDEXECUTIVE OFFICERS OF THE REGISTRANT.

## ** **

The following information summarizes the business experience during atleast the past five years of each of our named executive officers and themembers of our management board.

 
| **Name**                  | ** ** | **Age** | ** ** | **Position(s)**                              |
|---------------------------|------------|---------|------------|----------------------------------------------|
| Neil G. Kiefer            |       | 54      |       | Chief Executive Officer                      |
| Michael J. Hessling       |       | 53      |       | Chief Operating Officer and Management Board |
| Deborah J. Pierce         |       | 57      |       | Chief Financial Officer                      |
| John T. Blakely           |       | 61      |       | Management Board                             |
| Gilbert DiGiannantonio(1) |       | 57      |       | Management Board                             |
| Edward C. Droste          |       | 54      |       | Management Board                             |
| Sukeaki Izumi(2)          |       | 68      |       | Management Board                             |
| Toyoroku Izumi(2)         |       | 42      |       | Management Board                             |
| Dennis D. Johnson         |       | 55      |       | Management Board                             |
| David L. Lageschulte      |       | 54      |       | Management Board                             |
| William R. Ranieri(1)     |       | 84      |       | Management Board                             |

 

----

(1)             Mr. DiGiannantonio is the son-in-lawof Mr. Ranieri.

 

(2)             Mr. Sukeaki Izumi is the father ofMr. Toyoroku Izumi.

 

**BusinessExperience**

** **

*Neil G. Kiefer.*Mr. Kiefer was appointed our ChiefExecutive Officer in August 2004. Mr. Keifer has been involved in theHooters organization since its inception in 1983, when he incorporated theoriginal Hooters entity, Hooters Inc. From 1983 to 1992, Mr. Kieferserved as general outside counsel to Hooters Inc. and its related Hootersentities. From May 1992 to June 1994, Mr. Kiefer served asPresident and Chief Executive Officer of Hooters Management Corporation, themanaging entity for Hooters Inc. and its affiliated companies. SinceJune 1994, Mr. Kiefer has served as President and Chief ExecutiveOfficer of Hooters Inc. and all other Hooters corporations affiliated withHooters Inc. Mr. Kiefer was elected to the Hooters Inc. board ofdirectors in 1994 and continues to serve on the board.

 

*Michael J. Hessling.*Mr. Hessling wasappointed to our management board on July 30, 2004 and was appointed our ChiefOperating Officer in August 2004. Mr. Hessling has been involved in thegaming industry since 1979 when he joined Caesars Palace as Manager ofFinancial Planning. Before his departure in 1983, Mr. Hessling waspromoted to Assistant Vice President of Planning and Administration and, afterassisting in the opening of Caesars Tahoe, served as management liaison betweenthe Tahoe and Las Vegas operations. During 1983, Mr. Hessling served asVice President of Casino Operations for CSP, a management company that operatedthe Dunes Hotel & Casino. From 1983 to 1988, Mr. Hessling servedas general manager of several small casinos in Las Vegas. Since 1989,Mr. Hessling has been a part owner of and has served as Treasurer and adirector for Beatty Future Inc., which owns a casino motel in ruralNevada. From 1989 until June 2004, Mr. Hessling served as ExecutiveVice President, General Manager and Chief Operating Officer of the Hôtel SanRémo.

 

*Deborah J. Pierce.*Ms. Pierce wasappointed our Chief Financial Officer in February 2005. FromJune 1995 to May 1998, Ms. Pierce served as Vice President ofFinance for Tropicana Resort &

 

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Casino and was responsible for variousfinancial and operational aspects of the organization’s business. FromJune 1998 to November 1998, Ms. Pierce served as Chief FinancialOfficer, Secretary and Treasurer of Palace REIT, a real estate investment trustformed in 1998 to acquire office and industrial properties in selected marketsin the United States. From November 1998 to June 2003,Ms. Pierce served as Vice President of Finance for AmeristarCasinos, Inc. From July 2003 to August 2004, Ms. Pierceserved as Vice President of Finance for Silverton Casino, LLC where she wasresponsible for various financial, regulatory and operational aspects of thecompany’s business. From November 2004 to February 2005, Ms. Pierce servedas Chief Financial Officer of Fantasy Springs Resort & Casino.

 

*John T. Blakely.*Mr. Blakely was appointed to ourmanagement board in July 2004. Mr. Blakely has been practicing law inFlorida since 1970. In 1973, Mr. Blakely practiced in the Tampa andClearwater offices of Johnson, Blakely, Pope, Bokor, Ruppel and Burns and was apartner when he left in 2003. Since 2003, Mr. Blakely has been a partnerwith the Naples office of Roetzel & Andress, a national law firm basedin Akron, Ohio. Mr. Blakely has served as Director (1999 to 2002) and President(2001 to 2002) of the Port Royal Club in Naples, Florida.

 

*Gilbert DiGiannantonio.*Mr. DiGiannantoniowas appointed to our management board in July 2004.Mr. DiGiannantonio is one of the original founders of the Hootersrestaurant, concept and brand. He has served as the Vice President ofOperations and Vice President of Hooters Inc. since 1983.Mr. DiGiannantonio is also the co-owner of two Hooters restaurants in LasVegas, Nevada. In addition, he is an owner of the Pete & Shorty’s ofClearwater restaurant.

 

*Edward C. Droste.*Mr. Drostewas appointed to our management board in July 2004. Mr. Droste is oneof the original founders of the Hooters restaurant, concept and brand.Mr. Droste co-founded several restaurant concepts, includingPete & Shorty’s Tavern and Adobe Gila’s and was involved in theconceptual development of Dan Marino’s Town Tavern and Stumps Supper Club.Currently, Mr. Droste serves as Chief Executive Officer of ProvidentManagement Corporation, a resort management company, which he founded (since1989), and as a director for Hooters Management Corporation (since 1992). In1986, Mr. Droste founded Provident Advertising &Marketing, Inc., which is responsible for coordinating the promotionalactivities for the Hooters restaurants and the national distribution of theHooters calendar. In 1995, Mr. Droste founded ProvidentEntertainment, Inc., an entertainment company that produces a two-hourradio talk show and is in talks to produce a motion picture. Mr. Drostealso serves on the board of directors for the Outback Bowl (since 2004), the H.Lee Moffitt Cancer Center & Research Institute Foundation, Inc.(since 2003), and the Clearwater Regional Chamber of Commerce (since 1993).

 

*Sukeaki Izumi.*Mr. Izumiwas appointed to our management board in July 2004. Mr. Izumi was thefounder of Eastern & Western, which was formed in 1988 to acquire,remodel, expand and operate the Hôtel San Rémo property. Since 1988,Mr. Izumi has served as the President and Director of Eastern &Western. Mr. Izumi also serves as President and Director of S.I.Enterprises, LLC (formerly known as S.I. Enterprises, Inc.), theentity which wholly owns Eastern & Western (since 1990), BeattyFuture, Inc. (since 1989), an entity in which Mr. Izumi has anownership interest, and I & F Corporation, Japan (since 1973).Mr. Izumi served as President, Chairman and Director of Hakusui Tech,Co., Ltd. from 1992 to 2002. Hakusui Tech. Co., Ltd. filed anapplication for the commencement of civil rehabilitation proceedings with aJapanese court in June 2002. As a result of such filing, the company underwentcourt-supervised reorganization.

 

*Toyoroku Izumi.*Mr. Izumiwas appointed to our management board in July 2004. Mr. Izumi hasbeen a director, Secretary and Treasurer of Eastern & Western since1990. From 1996 to 2002, Mr. Izumi served as Vice President of BeattyFuture, Inc., an entity in which he has an ownership interest.Mr. Izumi also serves as director, Treasurer and Assistant Secretary ofS.I. Enterprises, LLC (formerly known as S.I. Enterprises, Inc.), theentity that wholly owns Eastern & Western (since 1995), and as adirector of I&F

 

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Corporation, Japan (since1997). Mr. Izumi has been serving as the President of Hakusui Tech,Co., Ltd. since 2000. Hakusui Tech. Co., Ltd. filed an applicationfor the commencement of civil rehabilitation proceedings with a Japanese courton June 21, 2002. As a result of such filing, the company underwent court-supervisedreorganization.

 

*Dennis D. Johnson.*Mr. Johnson wasappointed to our management board in August 2004. Mr. Johnson is oneof the original founders of the Hooters restaurant, concept and brand. In 1994,Mr. Johnson joined the corporate office of Hooters Inc. and wasresponsible for maintaining the integrity of the Hooters trademark throughquality control, store inspections and site selections until 2002. From 1994 to2004, Mr. Johnson served as the Vice President of Hooters ManagementCorporation. Since 2000, Mr. Johnson has served as the Vice President ofMerchandise Sales. Since 1992, Mr. Johnson has been a member of theHooters Management Corporation board of directors.

 

*David L. Lageschulte.*Mr. Lageschultewas appointed to our management board in July 2004. Mr. Lageschulteis the controlling shareholder of the original licensee of the Hootersrestaurant concept and brand. Mr. Lageschulte controls and is the ChiefExecutive Officer of 19 Hooters restaurants which operate throughout Southeastand Southwest Florida, and in the State of Nevada. Mr. Lageschulte is theChief Executive Officer of LTP Management Group, Inc., a restaurantmanaging entity for 32 restaurants, which he established in 1987.Mr. Lageschulte co-founded several restaurant and entertainment conceptsincluding Dan Marino’s Fine Food & Spirits, Adobe Gila’s, Ugly TunaSaloona, Stumps Supper Club and Splitsville. Mr. Lageschulte also ownsseveral corporations, in Florida and other states, which are involved in anarray of operations including health and fitness centers, heavy equipment salesand leasing, well drilling and real estate investments.

 

*William R. Ranieri.*Mr. Ranieriwas appointed to our management board in July 2004. Mr. Ranieri isone of the original founders of the Hooters restaurant, concept and brand and,since 1983, has served as a director for Hooters Management Corporation,Hooters Inc. and its related entities.

 

**Committees of ourManagement Board**

** **

Our management boardcurrently does not have any committees. More specifically, our management boarddoes not have a compensation committee or an audit committee. The guidelinesand pay levels for the compensation of executive officers are generallyestablished by the management board. All the functions of an audit committee areperformed by the entire management board.

 

**Code of Ethics**

** **

Due to our limited size, wehave not yet adopted a code of ethics that applies to our principal executiveofficer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions.

 

## **ITEM 11.**                      EXECUTIVECOMPENSATION.

## ** **

**ExecutiveCompensation**

** **

Our executive officers began receiving a salary fromus as of November 1, 2005. Prior to that date, they received compensation fromEastern & Western. We reimbursed Eastern & Western for time that ourexecutive officers spent on company matters in the following amounts:  $41,541 for Deborah J. Pierce and $33,848 forMichael J. Hessling. These amounts are included in the table below as salary.

 

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| **Name and Principal Position** | ** ** | **Annual Compensation** | ** ** | **All Other  Compen-  sation(1)** | ** ** |
|------------------------------------------------|------------|------------------------------|------------|----------------------------------------|------------|
| ** **                                     | **Year**   | ** **                   | **Salary** | ** **                             | **Bonus**  | ** ** | ** ** |
| Neil G. Kiefer  Chief Executive Officer        |       | 2005                         |       | $                                      | 46,154     |   | $ | — |   | $ | 143 |   |
| Deborah J.  Pierce  Chief Financial Officer    |       | 2005                         |       | $                                      | 66,540     |   | $ | 50,000 |   | $ | 143 |   |
| Michael J. Hessling  Chief Operating Officer   |       | 2005                         |       | $                                      | 79,681     |   | $ | — |   | $ | 143 |   |

 

----

(1)          All other compensation includes premiums paid forlife insurance policies insuring the lives of the executive officers.

 

**EmploymentContracts**

** **

We have noemployment contracts with our executive officers.

 

**Compensation ofManagement Board**

** **

The members of our management board currently do not receive anyseparate compensation for serving on our management board. All members of ourmanagement board are reimbursed for expenses incurred in connection withattendance at board meetings.

 

**Options, Long TermIncentive and Other Benefit Plans**

** **

We do not maintain a stockoption plan or any similar employee benefit plan. Accordingly, during the lastfiscal year, we have not issued any options or stock to any of its executiveofficers or directors. In addition, there have not been any exercises orre-pricings of stock options or stock appreciation rights held by any of ourexecutive officers or directors.

 

## **ITEM 12.**                      SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

## ** **

The following table showsinformation regarding the beneficial ownership of our membership interests asof December 31, 2005, and sets forth the number of and percentage ownedby:

 

•                  each person known to own beneficially more than5% of any units of our membership interests;

 

•                  each of the members of our management boardand named executive officers; and

 

•                  all of our management board and executiveofficers as a group.

 

A person is a “beneficial owner” of a security if that person has orshares “voting power,” which includes the power to vote or to direct the votingof the security, or “investment power,” which includes the power to dispose ofor to direct the disposition of the security.

 

88

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| **Name of Beneficial Owner**                                               | ** ** | **Number of Units  Beneficially Owned** | ** ** | **Percent of  Units  Owned Beneficially** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-----------------------------------------------------|------------|
| *Florida  Hooters LLC(1)*107 Hampton Road #200  Clearwater, FL 33759                      |       | 66.67                                                  |       | 66.67                                               | %          |
| Hooters Gaming  LLC  107 Hampton Road #200  Clearwater, FL 33759                          |       | 33.40                                                  |       | 33.40                                               | %          |
| Gilbert  DiGiannantonio(2)  107 Hampton Road #200  Clearwater, FL 33759                   |       | 16.52                                                  |       | 16.52                                               | %          |
| William  Ranieri(3)  107 Hampton Road #200  Clearwater, FL 33759                          |       | 6.61                                                   |       | 6.61                                                | %          |
| Edward Droste(4)  107 Hampton Road #200  Clearwater, FL 33759                             |       | 3.97                                                   |       | 3.97                                                | %          |
| Dennis  Johnson(5)  107 Hampton Road #200  Clearwater, FL 33759                           |       | 0.66                                                   |       | 0.66                                                | %          |
| Neil Kiefer(6)  107 Hampton Road #200  Clearwater, FL 33759                               |       | 1.67                                                   |       | 1.67                                                | %          |
| Lags Ventures,  LLC  4411 Cleveland Avenue  Ft. Myers, FL 33901                           |       | 33.27                                                  |       | 33.27                                               | %          |
| David  Lageschulte(7)  4411 Cleveland Ave.  Ft. Myers, FL 33902                           |       | 33.27                                                  |       | 33.27                                               | %          |
| *EW  Common LLC(8)*115 East Tropicana Ave.  Las Vegas, NV 89109                           |       | 33.33                                                  |       | 33.33                                               | %          |
| Eastern &  Western Hotel Corporation(9)  115 East Tropicana Ave.  Las Vegas, NV 89019 |       | 30.00                                                  |       | 30.00                                               | %          |
| S.I.  Enterprises, Inc.(10)  115 East Tropicana Ave.  Las Vegas, NV 89019            |       | 30.00                                                  |       | 30.00                                               | %          |
| Sukeaki Izumi(10)(11)  115 East Tropicana Ave.  Las Vegas, NV 89109                       |       | 2.10                                                   |       | 2.10                                                | %          |
| Toyoroku Izumi(10)(12)  115 East Tropicana Ave  Las Vegas, NV 89109                       |       | 27.90                                                  |       | 27.90                                               | %          |
| Michael J.  Hessling(13)  115 East Tropicana Ave.  Las Vegas, NV 89109                    |       | 3.33                                                   |       | 3.33                                                | %          |
| *All  Management Board and Executive Officers as a group*(11 persons)                     |       | 96.04                                                  |       | 96.04                                               | %          |

 

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(1)                          The membership interests of FloridaHooters LLC are owned 50.1% by Hooters Gaming LLC and 49.9% by Lags Ventures,LLC.

 

(2)                          By virtue of his 49.474% ownershipinterest in Hooters Gaming LLC, Mr. DiGiannantonio is deemed tobeneficially own 16.52% of our membership interests.

 

(3)                          By virtue of his 19.789% ownershipinterest in Hooters Gaming LLC, Mr. Ranieri is deemed to beneficially own6.61% of our membership interests.

 

(4)                          By virtue of his 11.885% ownershipinterest in Hooters Gaming LLC, Mr. Droste is deemed to beneficially own3.97% of our membership interests.

 

(5)                          By virtue of his 1.979% ownershipinterest in Hooters Gaming LLC, Mr. Johnson is deemed to beneficially own0.66% of our membership interests.

 

(6)                          By virtue of his 5.000% ownershipinterest in Hooters Gaming LLC, Mr. Kiefer is deemed to beneficially own1.67% of our membership interests.

 

(7)                          By virtue of his sole ownership andcontrol of Lags Ventures, LLC, Mr. Lageschulte is deemed to beneficiallyown all of our membership interests beneficially owned by LagsVenture, LLC.

 

(8)                          The membership interests of EW Common LLCare owned 90% by Eastern & Western and 10% by Michael Hessling.

 

(9)                          Eastern & Western is whollyowned by S.I. Enterprises, Inc.

 

(10)                    S.I. Enterprises, Inc. was converted into a limitedliability company on February 28, 2005 and is now known asS.I. Enterprises, LLC. The interests in S.I. Enterprises, Inc.are owned 93% by Toyoroku Izumi and 7% by Sukeaki Izumi. By virtue of its soleownership of Eastern & Western, S.I. Enterprises, Inc. is deemedto beneficially own all of our membership interests beneficially owned byEastern & Western.

 

(11)                    By virtue of his 7% ownership of S.I.Enterprises, Inc., Mr. S. Izumi is deemed to beneficially own 2.10%of our membership interests.

 

(12)                    By virtue of his 93% ownership of S.I. Enterprises, Inc.,Mr. T. Izumi is deemed to beneficially own 27.90% of our membershipinterests.

 

(13)                    By virtue of his 10% ownership of EW Common LLC,Mr. Hessling is deemed to beneficially own 3.33% of our membershipinterests.

 

## **ITEM 13.**                      CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS.

## ** **

We believe that all of the transactions mentioned below are on terms atleast as favorable to us as would have been obtained from an unrelated thirdparty.

 

**Florida HootersLLC and Related Entities**

** **

We have entered into anassignment agreement with Florida Hooters LLC whereby we have been assigned(i) a license to use certain intellectual property related to the Hootersbrand in connection with gaming, casino or combined hotel gaming and casinooperations at the Hooters Casino Hotel property; (ii) a non-exclusivelicense to use the Hooters restaurant concept at the Hooters Casino Hotelproperty; and (iii) an exclusive license to use certain intellectualproperty to operate and promote restaurants, taverns, lounges and bars usingthe marks “Dan Marino’s Fine Food & Spirits” and “‘13’ Martini Bar,”which is operated in conjunction with Dan Marino’s Fine Food &Spirits, at the Hooters Casino Hotel property. Pursuant to the assignmentagreement, we must pay certain fees to related entities.

 

Hooters Gaming Corporation is a related entity whichis owned by certain members of our management board (Gilbert DiGiannantonio(52.078%), William Ranieri (20.831%), Edward Droste

 

90

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(12.510%), and DennisJohnson (2.083%)) as well as some of our other indirect minority interestowners. Las Vegas Wings, Inc. is a related entity that is owned by DavidLageschulte (50.69%), Gilbert DiGiannantonio (14.18%) and William Ranieri(5.13%), all of whom are members of our management board and indirectmembership interest owners. Lags Ventures, Inc. is a related entity whichis wholly owned by David Lageschulte, a member of our management board and anindirect beneficial owner (through Lags Ventures, LLC) of 33.27% of ourmembership interests.

 

Pursuant to the terms of ourassignment agreement with Florida Hooters LLC, we must accrue the followingfees beginning on February 3, 2006, the opening of the Hooters Casino Hotel

 

•                  *Hooters Gaming Corporation.*We pay HootersGaming Corporation a fee equal to three percent (3%) of all net gaming revenuesgenerated from our gaming activities (as defined by Nevada law). The feeaccrues on a monthly basis.

 

•                  *Las Vegas Wings, Inc.*We pay LasVegas Wings, Inc. a consent fee equal to four percent (4%) of gross sales fromany Hooters branded restaurant, including the gross sales of any merchandisewith a Hooters logo, at any location on or about the Hooters Casino Hotel. Thisconsent fee accrues monthly.

 

•                  *Lags Ventures, Inc.*The “Dan Marino’sFine Food & Spirits” and “‘13’ Martini Bar” marks used in connectionwith restaurant services at the Hooters Casino Hotel property, require us topay Lags Ventures, Inc. a royalty equal to six percent (6%) of gross salesgenerated from such establishments. This mark fee is calculated on a monthlybasis, subject to any subordination or deferral agreed to by LagsVentures, Inc., and is payable no later than 30 days after thetermination of the preceding full calendar month. In addition to the mark fee,we pay Lags Ventures, Inc. all training fees, set-up fees and otherstart-up items customarily incurred by Lags Ventures, Inc. in similar licensingsituations. These additional fees and amounts are not and will not besubordinated or deferred to any other amount.

 

Hooters Gaming Corporation, Las Vegas Wings, Inc. and LagsVentures, Inc. have agreed to subordinate payment of their respective fees infavor of the obligations of 155 East Tropicana, LLC and its subsidiaries underthe Notes and any guarantees of the Notes, certain payments to be made pursuantto our operating agreement, and any fees due to any of them will accrue andremain unpaid until there is sufficient net cash flow from operations to makeall of the foregoing payments. In addition, the foregoing fees are subject toapplicable limitations in the indenture governing the Notes, such as thelimitation on restricted payments to the extent they constitute restrictedpayments.

 

**Other Transactions**

** **

*Provident Advertising &Marketing, Inc.*Provident Advertising &Marketing, Inc.’s majority shareholder is Edward C. Droste, a member ofour management board and an indirect beneficial owner of 3.96% of ourmembership interests. During 2004 and 2005, Provident Advertising &Marketing, Inc. provided us with services relating to the planning anddevelopment of an advertising and marketing plan. The aggregate marketing fee andmerchandise fee paid to Provident Advertising & Marketing, Inc.for the year ended December 31, 2005 and the period from inception (June17, 2004) through December 31, 2004 was approximately $215,675 and $19,500,respectively. In addition, we paid $89,511 to Provident Merchandise Sourcing,and $179 to Provident Creative for merchandise to sell in our gift shops anduniforms. Both Provident Merchandise Sourcing and Provident Creative are affiliatedwith Provident Advertising & Marketing, Inc. We will continue to engageProvident Advertising & Marketing, Inc. for

 

91

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the continued developmentand implementation of a strategic marketing plan in connection with the HootersCasino Hotel.

 

*Eastern & Western HotelCorporation.*After acquiring the property, but prior to obtainingour gaming licenses, we entered into a casino lease with Eastern &Western as the operator of all areas of the Hôtel San Rémo relating to casinogaming. Pursuant to the terms of the lease, Eastern & Western leasedfrom us those portions of the Hôtel San Rémo containing the showroom, gamingand liquor servicing areas, including areas containing and immediately adjacentto slot machines, video machines, all gaming devices, table games, the pokerroom, keno area, baccarat areas, and other areas which are subject to directsupervision by the Nevada Gaming Authorities, as well as all surveillanceareas, counting rooms, cashier cages and other areas ancillary to casinogaming. We also entered into a hotel lease with Eastern & Western asthe operator of all non-casino areas of the Hôtel San Rémo. These leases wereterminated on November 1, 2005, after we received our gaming licenses. Eastern& Western paid us an aggregate amount of approximately $5.4 million and$2.2 million, respectively, under the leases during the year ended December 31,2005 and the period from inception (June 17, 2004) through December 31, 2004.

 

*Hawkeye Construction andMillwork, Inc.*Hawkeye Construction and Millwork, Inc. isco-owned by David Lageschulte, a member of our management board and an indirectbeneficial owner of 33.27% of our membership interests. In February 2005,we entered into an agreement with Hawkeye Construction and Millwork, Inc.whereby Hawkeye Construction and Millwork, Inc. would manage theconstruction and renovation project at the hotel casino property. Total compensationfor services is two percent (2%) of the construction and furniture, fixturesand equipment costs, but will not exceed $600,000. The fee is paid on a monthlybasis. As of December 31, 2005, we had paid $527,827 to Hawkeye Constructionand Millwork, Inc.

 

*Pete & Shorty’s, Inc.*Pete & Shorty’s, Inc. is owned by our chief executiveofficer, Neil Kiefer (6.39%), certain members of our management board (GilbertDiGiannantonio (12.77%), William Ranieri (4.26%), Edward Droste (14.00%), andDennis Johnson (9.34%)), and an indirect minority interest owner. InMarch 2005, we entered into a license agreement with Pete &Shorty’s, Inc. whereby we were granted a nonexclusive, royalty-freelicense to use the Pete & Shorty’s mark in connection with arestaurant, bar and lounge at the Hooters Casino Hotel. Pursuant to the licenseagreement, we can also use the mark in connection with affiliated merchandise,entertainment and casino services.

 

## **ITEM 14.**                      PRINCIPAL ACCOUNTINGFEES AND SERVICES.

## ** **

The aggregate accountingfees billed and services provided by Ernst & Young LLP, our principalaccountants, to us and Hôtel San Rémo Casino and Resort for 2005 and 2004 areas follows:

 
| **155 East Tropicana, LLC** | ** ** | **Year ended  December 31,  2005** | ** ** | **Period from  Inception  (June 17, 2004)  Through  December 31,  2004** | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| Audit fees(1)                              |       | $                                            | 104,626    |                                                                          | $          | 35,000 |   |
| Audit-related  fees(2)                     |       | 8,100                                        |       | —                                                                        |       |
| Tax fees                                   |       | —                                       |       | —                                                                        |       |
| All other fees(3)                          |       | 410,202                                      |       | —                                                                        |       |
| Total fees                                 |       | $                                            | 522,928    |                                                                          | $          | 35,000 |   |

 

92

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| **Hôtel San Rémo Casino and Resort** | ** ** | **Ten months ended  October 31,  2005** | ** ** | **Year ended  December 31,  2004** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------------|------------|
| Audit fees(1)                                                           |       | $                                                      | 97,068     |                                         | $          | 44,000 |   |
| Audit-related  fees(2)                                                  |       | —                                                 |       | 61,000                                       |       |
| Tax fees                                                                |       | —                                                 |       | —                                       |       |
| All other fees(3)                                                       |       | —                                                 |       | —                                       |       |
| Total fees                                                              |       | $                                                      | 97,068     |                                         | $          | 105,000 |   |

 

----

(1)          Represents theaggregate fees Ernst & Young LLP billed us and Hôtel San Rémo Casino andResort for professional services for the audits of our annual financialstatements and review of financial statements included in our reports on Form10-Q or services that are normally provided by Ernst & Young LLP inconnection with those filings. The 2005 audit fees for Hôtel San Rémo includes$36,000 related to Ernst & Young LLP performing an audit of the 2002combined financial statements that was invoiced in March 2005.

 

(2)          Represents theaggregate fees Ernst & Young LLP billed us and Hôtel San Rémo Casino andResort for assurance and related services that are reasonably related to theperformance of the audits in 2005 and 2004.

 

(3)          Represents theaggregate fees Ernst & Young LLP billed for other than the items describedin 1–3 above. The fees of $410,202 represent fees billed to us for assistancerelated to the offering of the old notes and the registration statement on FormS-4, declared effective by the SEC on June 24, 2005.

 

We do not have an auditcommittee or a pre-approval policy with respect to any fees paid to Ernst &Young LLP, our principal accountants.

 

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# **PARTIII**

# ** **

## **ITEM 15.**                      EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES.

## ** **

(a)   List the following documents filed as part of the report:

 

(1)   All financial statements.

 

Included in “Item 8. FinancialStatements and Supplementary Data” above.

 

(2)   Financial Statement Schedules.

 

Not applicable.

 

(3)   Exhibit Index.

 

Not applicable.

 

See exhibits listed on theExhibit Index following the signature page of this Annual Report, where saidExhibit Index is incorporated herein by reference.

 

(b)   Exhibits.

 

Included as exhibits arethe items listed in the Exhibit Index.

 

(c)            Financial Statement Schedules

 

Not applicable.

 

94

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## **SIGNATURES**

## ** **

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
| ** **            | **155 EAST TROPICANA, LLC** |
|-----------------------|-----------------------------|
|                  |                        | (Registrant) |
|                  |                        |
|                  |                        |
|                  | By:                         | /s/ Neil G. Keifer |
| Date:  March 31, 2006 |                        | Neil G. Kiefer |
|                  | Its:                        | Chief Executive Officer |
|                       |                             |  |  |

 

Pursuant to the requirementsof the Securities and Exchange Act of 1934, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates included.

 

 
| **Signature**          | ** ** | **Title**                                                             | ** ** | **Date**       |
|------------------------|------------|-----------------------------------------------------------------------|------------|----------------|
|                   |       |                                                                  |       |           |
| /s/  Neil G. Keifer    |       | Chief Executive Officer (Principal Executive  Officer)                |       | March 31, 2006 |
| Neil G. Kiefer         |       |                                                                  |       |           |
|                   |       |                                                                  |       |           |
| /s/  Deborah J. Pierce |       | Chief Financial Officer (Principal Financial and  Accounting Officer) |       | March 31, 2006 |
| Deborah J. Pierce      |       |                                                                  |       |           |
|                   |       |                                                                  |       |           |
| /s/  Michael Hessling  |       | Chief Operating Officer and Management Board                          |       | March 31, 2006 |
| Michael Hessling       |       |                                                                  |       |           |
|                   |       |                                                                  |       |           |
| /s/  Toyoroku Izumi    |       | Management Board                                                      |       | March 31, 2006 |
| Toyoroku Izumi         |       |                                                                  |       |           |

 

95

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| **Signature**              | ** ** | **Title**        | ** ** | **Date**       |
|----------------------------|------------|------------------|------------|----------------|
|                       |       |             |       |           |
| /s/ Sukeaki Izumi          |       | Management Board |       | March 31, 2006 |
| Sukeaki Izumi              |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ William Ranieri        |       | Management Board |       | March 31, 2006 |
| William Ranieri            |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ David Lageschulte      |       | Management Board |       | March 31, 2006 |
| David Lageschulte          |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ Edward Droste          |       | Management Board |       | March 31, 2006 |
| Edward Droste              |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ Gilbert DiGiannantonio |       | Management Board |       | March 31, 2006 |
| Gilbert DiGiannantonio     |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ John Blakely           |       | Management Board |       | March 31, 2006 |
| John Blakely               |       |             |       |           |
|                       |       |             |       |           |
|                       |       |             |       |           |
| /s/ Dennis Johnson         |       | Management Board |       | March 31, 2006 |
| Dennis Johnson             |       |             |       |           |

 

96

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## **SIGNATURES**

## ** **

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|                  | **155 EAST TROPICANA FINANCE  CORP.** |
|-----------------------|---------------------------------------|
|                  |                                  | (Registrant) |
|                  |                                  |
|                  |                                  |
|                  | By:                                   | /s/ Neil G. Kiefer |
| Date:  March 31, 2006 |                                  | Neil G. Kiefer |
|                  | Its:                                  | Chief Executive Officer |
|                       |                                       |  |  |

 

Pursuantto the requirements of the Securities and Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates included.

 
| **Signature**         | ** ** | **Title**                                               | ** ** | **Date**       |
|-----------------------|------------|---------------------------------------------------------|------------|----------------|
|                  |       |                                                    |       |           |
| /s/ Neil G. Kiefer    |       | President (Principal Executive Officer)                 |       | March 31, 2006 |
| Neil G. Kiefer        |       |                                                    |       |           |
|                  |       |                                                    |       |           |
| /s/ Deborah J. Pierce |       | Treasurer (Principal Financial and Accounting  Officer) |       | March 31, 2006 |
| Deborah J. Pierce     |       |                                                    |       |           |
|                  |       |                                                    |       |           |
| /s/ Michael Hessling  |       | Vice President, Secretary and Director                  |       | March 31, 2006 |
| Michael Hessling      |       |                                                    |       |           |
|                  |       |                                                    |       |           |
| /s/ Toyoroku Izumi    |       | Director                                                |       | March 31, 2006 |
| Toyoroku Izumi        |       |                                                    |       |           |

 

97

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| **Signature**              | ** ** | **Title** | ** ** | **Date**       |
|----------------------------|------------|-----------|------------|----------------|
|                       |       |      |       |           |
| /s/ Sukeaki Izumi          |       | Director  |       | March 31, 2006 |
| Sukeaki Izumi              |       |      |       |           |
|                       |       |      |       |           |
| /s/ William Ranieri        |       | Director  |       | March 31, 2006 |
| William Ranieri            |       |      |       |           |
|                       |       |      |       |           |
| /s/ David Lageschulte      |       | Director  |       | March 31, 2006 |
| David Lageschulte          |       |      |       |           |
|                       |       |      |       |           |
| /s/ Edward Droste          |       | Director  |       | March 31, 2006 |
| Edward Droste              |       |      |       |           |
|                       |       |      |       |           |
| /s/ Gilbert DiGiannantonio |       | Director  |       | March 31, 2006 |
| Gilbert DiGiannantonio     |       |      |       |           |
|                       |       |      |       |           |
| /s/ John Blakely           |       | Director  |       | March 31, 2006 |
| John Blakely               |       |      |       |           |
|                       |       |      |       |           |
| /s/ Dennis Johnson         |       | Director  |       | March 31, 2006 |
| Dennis Johnson             |       |      |       |           |

 

98

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## **EXHIBIT INDEX**

 
| **Index No.** | ** ** | **Description**                                                                                                                                                                                                          |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **         | ** ** | ** **                                                                                                                                                                                                               |
| 3.1***             |       | Articles of Organization  of 155 East Tropicana LLC dated June 17, 2004                                                                                                                                                  |
|               |       |                                                                                                                                                                                                                     |
| 3.2***             |       | Amended and Restated  Articles of Organization of 155 East Tropicana LLC dated June 28, 2004                                                                                                                             |
|               |       |                                                                                                                                                                                                                     |
| 3.3***             |       | Articles of Incorporation  of 155 East Tropicana Finance Corp dated March 7, 2005                                                                                                                                        |
|               |       |                                                                                                                                                                                                                     |
| 3.4***             |       | Articles of Organization  of EW Common LLC dated July 23, 2004                                                                                                                                                           |
|               |       |                                                                                                                                                                                                                     |
| 3.5***             |       | Articles of Organization  of Florida Hooters LLC dated June 15, 2004                                                                                                                                                     |
|               |       |                                                                                                                                                                                                                     |
| 3.6***             |       | Amended and Restated  Articles of Organization of Florida Hooters LLC dated November 5, 2004                                                                                                                             |
|               |       |                                                                                                                                                                                                                     |
| 3.7***             |       | Amended and Restated  Operating Agreement of 155 East Tropicana, LLC dated March 9, 2005                                                                                                                                 |
|               |       |                                                                                                                                                                                                                     |
| 3.8***             |       | Code of Bylaws of 155 East  Tropicana Finance Corp. dated March 8, 2005                                                                                                                                                  |
|               |       |                                                                                                                                                                                                                     |
| 3.9***             |       | Operating Agreement of EW  Common LLC dated July 30, 2004                                                                                                                                                                |
|               |       |                                                                                                                                                                                                                     |
| 3.10***            |       | Operating Agreement of  Florida Hooters LLC dated July 30, 2004                                                                                                                                                          |
|               |       |                                                                                                                                                                                                                     |
| 4.1***             |       | Indenture among 155 East  Tropicana, LLC, 155 East Tropicana Finance Corp and The Bank of New York  Trust Company, N.A. dated March 29, 2005                                                                             |
|               |       |                                                                                                                                                                                                                     |
| 4.2***             |       | Registration Rights  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp,  Florida Hooters LLC, EW Common LLC, Jefferies & Company, Inc. and Wells  Fargo Securities, LLC dated March 29, 2005. |
|               |       |                                                                                                                                                                                                                     |
| 10.1***            |       | Purchase Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp, Jefferies &  Company, Inc. and Wells Fargo Securities, LLC dated March 23, 2005.                                                 |
|               |       |                                                                                                                                                                                                                     |
| 10.2***            |       | Senior Secured Notes  Security Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance  Corp and The Bank of New York Trust Company, N.A. dated March 29, 2005                                               |
|               |       |                                                                                                                                                                                                                     |
| 10.3***            |       | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and The Bank of New  York Trust Company, N.A. dated March 29, 2005                                                                       |
|               |       |                                                                                                                                                                                                                     |
| 10.4***            |       | Parent Pledge Agreement among  Florida Hooters LLC, EW Common LLC and The Bank of New York Trust Company,  N.A. dated March 29, 2005                                                                                     |
|               |       |                                                                                                                                                                                                                     |
| 10.5***            |       | Trademark Security  Agreement among 155 East Tropicana LLC, 155 East Tropicana Finance Corp and  The Bank of New York Trust Company, N.A. dated March 29, 2005                                                           |
|               |       |                                                                                                                                                                                                                     |
| 10.6***            |       | Credit Agreement among 155  East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005                                                                                    |
|               |       |                                                                                                                                                                                                                     |
| 10.7†         |       | Amendment Number One to  Credit Agreement dated January 30, 2006                                                                                                                                                         |
|               |       |                                                                                                                                                                                                                     |
| 10.8***            |       | Security Agreement among  155 East Tropicana, LLC, 155 East Tropicana Finance Corp and Wells Fargo  Foothill, Inc. dated March 29, 2005                                                                                  |
|               |       |                                                                                                                                                                                                                     |
| 10.9***            |       | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., Eastern & Western Hotel  Corporation, Wells Fargo Brokerage Services, LLC dated March 29, 2005                                             |
|               |       |                                                                                                                                                                                                                     |
| 10.10***           |       | Securities Account Control  Agreement between Wells Fargo Foothill, Inc., 155 East Tropicana, LLC and  Wells Fargo Brokerage Services, LLC dated March 29, 2005                                                          |
|               |       |                                                                                                                                                                                                                     |
| 10.11***           |       | Collateral Account Control  Agreement among 155 East Tropicana, LLC, The Bank of New York Trust Company,  N.A. dated March 29, 2005 (Interest Reserve Account)                                                           |

 

99

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| **Index No.** | ** ** | **Description**                                                                                                                                                                                                                      |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **         | ** ** | ** **                                                                                                                                                                                                                           |
| 10.12***           |       | Cash Collateral and  Disbursement Agreement among The Bank of New York Trust Company, N.A., and  155 East Tropicana, LLC and 155 East Tropicana Finance Corp. dated March 29,  2005                                                  |
|               |       |                                                                                                                                                                                                                                 |
| 10.13***           |       | Guarantee and Pledge  Agreement between Eastern & Western Hotel Corporation and Wells Fargo  Foothill, Inc. dated March 29, 2005                                                                                                 |
|               |       |                                                                                                                                                                                                                                 |
| 10.14***           |       | Parent Pledge Agreement among Florida Hooters, LLC,  EW Common LLC and Wells Fargo Foothill, Inc. dated March 29, 2005                                                                                                               |
|               |       |                                                                                                                                                                                                                                 |
| 10.15***           |       | Intercompany Subordination  Agreement among 155 East Tropicana, LLC, 155 East Tropicana Finance Corp. and  Wells Fargo Foothill, Inc. dated March 29, 2005                                                                           |
|               |       |                                                                                                                                                                                                                                 |
| 10.16***           |       | Intercreditor and Lien  Subordination Agreement among Wells Fargo Foothill, Inc., The Bank of New  York Trust Company, N.A., 155 East Tropicana, LLC and 155 East Tropicana  Finance Corp. dated March 29, 2005                      |
|               |       |                                                                                                                                                                                                                                 |
| 10.17***           |       | Deed of Trust, Fixture  Filing with Assignment of Rents and Leases, and Security Agreement by and  from 155 East Tropicana, LLC, to Lawyers Title of Nevada, Inc for the benefit  of Wells Fargo Foothill, Inc. dated March 29, 2005 |
|               |       |                                                                                                                                                                                                                                 |
| 10.18***           |       | Leasehold Deed of Trust,  Fixture Filing with Assignment of Rents and Leases, and Security Agreement to  Lawyers Title of Nevada, Inc. for the benefit of Wells Fargo Foothill, Inc.  dated March 29, 2005                           |
|               |       |                                                                                                                                                                                                                                 |
| 10.19***           |       | Assignment of  Entitlements, Contracts, Rents and Revenues between 155 East Tropicana, LLC  and Wells Fargo Foothill, Inc. dated March 29, 2005                                                                                      |
|               |       |                                                                                                                                                                                                                                 |
| 10.20***           |       | Assignment of Entitlements  and Contracts between Eastern & Western Hotel Corporation and Wells Fargo  Foothill, Inc. dated March 29, 2005                                                                                       |
|               |       |                                                                                                                                                                                                                                 |
| 10.21***           |       | Subordination and  Attornment Agreement and Estoppel Certificate between Wells Fargo Foothill,  Inc., Eastern & Western Hotel Corporation and 155 East Tropicana, LLC  dated March 29, 2005                                      |
|               |       |                                                                                                                                                                                                                                 |
| 10.22***           |       | Consent to Collateral  Assignment of Contract by C&B Nevada, Inc. and Wells Fargo Foothills,  Inc. dated March 29, 2005                                                                                                          |
|               |       |                                                                                                                                                                                                                                 |
| 10.23***           |       | Consent to Collateral  Assignment of Contract by The PENTA Building Group, Inc. and Wells Fargo  Foothills, Inc. dated March 29, 2005                                                                                                |
|               |       |                                                                                                                                                                                                                                 |
| 10.24***           |       | Control Agreement among  Wells Fargo Foothill, Inc. Florida Hooters LLC, EW Common LLC and 155 East  Tropicana, LLC dated March 29, 2005                                                                                             |
|               |       |                                                                                                                                                                                                                                 |
| 10.25***           |       | Amended and Restated Joint  Venture Agreement between EW Common LLC, Eastern & Western Hotel  Corporation and Florida Hooters dated March 9, 2005                                                                                |
|               |       |                                                                                                                                                                                                                                 |
| 10.26***           |       | Amended and Restated  Assignment Agreement between Hooters Gaming Corporation and Florida Hooters,  LLC dated March 9, 2005                                                                                                          |
|               |       |                                                                                                                                                                                                                                 |
| 10.27***           |       | Amended and Restated  Assignment Agreement between Florida Hooters, LLC and 155 East Tropicana, LLC  dated March 9, 2005                                                                                                             |
|               |       |                                                                                                                                                                                                                                 |
| 10.28***           |       | Amended and Restated Mark  License Agreement between Lags Ventures, Inc. and Florida Hooters, LLC dated  March 9, 2005                                                                                                               |
|               |       |                                                                                                                                                                                                                                 |
| 10.29***           |       | Affirmation and Acknowledgement  between Hooters Gaming Corporation and 155 East Tropicana, LLC dated March 9,  2005                                                                                                                 |
|               |       |                                                                                                                                                                                                                                 |
| 10.30***           |       | Trademark License  Agreement between PETE & SHORTY’S, INC., Florida 33763 and 155 East  Tropicana, LLC dated March 11, 2005                                                                                                 |

 

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| **Index No.** | ** ** | **Description**                                                                                                                                                          |
|--------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **         | ** ** | ** **                                                                                                                                                               |
| 10.31***           |       | Amendment to License  Agreement between HI Limited Partnership and Hooters Gaming Corporation dated  February 24, 2005                                                   |
|               |       |                                                                                                                                                                     |
| 10.32***           |       | Collateral Account Control  Agreement among 155 East Tropicana, LLC and The Bank of New York Trust  Company, N.A. dated March 29, 2005 (Renovation Disbursement Account) |
|               |       |                                                                                                                                                                     |
| 31.1*              |       | Certification of Deborah  J. Pierce under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                  |
|               |       |                                                                                                                                                                     |
| 31.2*              |       | Certification of Neil G.  Kiefer under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                     |
|               |       |                                                                                                                                                                     |
| 32.1*              |       | Certification of Deborah  J. Pierce pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                            |
|               |       |                                                                                                                                                                     |
| 32.1*              |       | Certification of Neil G.  Kiefer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                               |

 

----

*             Filed herewith.

**      Previously filed as anexhibit to the registrant’s Pre-Effective Amendment No. 1. to its RegistrationStatement on Form S-4, as filed with the Securities and Exchange Commission onJune 16, 2005.

***   Previously filed as an exhibitto the registrant’s Registration Statement on Form S-4, as filed with theSecurities and Exchange Commission on May 13, 2005.

†              Previously filed asan exhibit to the registrant’s current report on Form 8-K, as filed with theSecurities and Exchange Commission on February 2, 2006.

 

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